How Do I Know How Much to Pay in Estimated Taxes?

Question: How Do I Know How Much to Pay in Estimated Taxes?

Answer:

What Are the Requirements for Paying Estimated Taxes?
You will need to pay estimated taxes depending on how much you owe and your business legal type.

Non-Corporation
If you are a sole proprietor, partner, or s-corporation shareholder, you will need to pay estimated taxes if both of the following apply:

• You expect to owe at least $1,000 in tax for 2009 after subtracting your withholding and credits.
  
• You expect your withholding and credits to be less than the smaller of:
  
  • 90% of the tax to be shown on your 2009 tax return, or
    
  • 100% of the tax shown on your 2008 tax return. Your 2008 tax return must cover all 12 months.

Corporation
If you are filing a tax return for a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

How Much to Pay
The IRS general rule is that you must pay the smaller of:

• 90% of your total expected tax for 2009, or
  
• 100% of the total tax shown on your 2008 return. Your 2008 tax return must cover all 12 months.

The special rule for 2009 for small businesses is this: If more than 50% of your gross income from 2008 was income from a small business and your Adjusted Gross Income in 2008 was less than $500,000 ($250,000 if you are married filing separate returns in 2009), substitute 90% for 100% in (2) above. The IRS determines that your business is a small business if it had an average of fewer than 500 employees in 2008.

Also for 2009, the IRS states that many individual small business taxpayers may be able to defer, until the end of the year, paying a larger part of their 2009 tax obligations. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements.

How to estimate

• If you are a sole proprietor, partner, or s corporation shareholder, you can estimate your taxes using the estimated tax worksheet in Publication 505:Estimated Tax .
  
• If you are a corporation, use form 1120-W to estimate the taxes you owe.

How to pay
You can pay your estimated taxes in any of the usual ways:

• By check
  
• Through the Electronic Federal Tax Payment System (EFTPS)
  
• Electronic Funds Withdrawal, or
  
• Credit Card.