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Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary is not enough, or if you receive income such as interest, dividends, capital gains, or self-employment income, you may have to make estimated tax payments, but not wait to pay your total tax bill next year when you file tax return.
Generally, individuals have to make estimated tax payments if they expect to owe tax of $1,000 or more when they file their tax returns. For estimated tax purposes, the year is divided into four payment periods. For 2017, the estimated tax payments due dates are April 18, June 15, September 15 and January 15 of next year. You can make payments by mail, by phone, or pay online.
Taxpayers generally use Form 1040-ES to figure estimated tax. You must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. Your prior year’s federal tax return is a great reference to calculate estimated tax.
If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.