Apr 10, 2009

What Should You Pay Toward Estimated Taxes This Year?

Most people base their estimated tax payments on their previous year's net income, but your income this year might be lower than last year's. Knowing this, the IRS will allow you to be conservative with your estimated payments this year. Previous IRS rules required business owners to pay estimated taxes based on 100-110% of their prior year's income, but fortunately, the stimulus package lowered that percentage to 90%. As long as you end up making estimated payments equal to either 90% of your 2008 income or 90% of your actual 2009 income (calculated each quarter), you won't be assessed a penalty. If you do underpay your estimated tax liability, there will be a small penalty, but if skimping a bit on estimated tax payments allows you to pay other more critical bills, it may be worth it. Estimated taxes for the first quarter of 2009 are due April 15. For more information on estimated taxes in general, see Nolo's article Paying Estimated Taxes.