An Enrolled Agent Tax Adviser Can Help With Delinquent Estimated Tax Payments

October 29, 2011 by  Filed under: Taxes 

Individuals with income from wages and retirement plans can meet their tax obligations by the withholding amounts on these payments. But enrolled agent study covers other taxable situations that trigger the need for additional payments to the IRS. Unfortunately, many taxpayers are surprised to learn that payment of any extra tax is expected four times per year – not just by April 15.

These cases are opportunities for enrolled agent tax advisers to help people understand estimated payments. The IRS assesses interest for failing to pay equal estimated tax payments. An exception is possible for a taxpayer who proves the extra tax liability occurred during specific periods. However, the calculation is quite detailed and the form required to report it generally demands the expertise of someone with enrolled agent training.

In most cases, individuals are simply encountering new taxable situations that call for periodic estimated tax payments. An example is someone who has retired or semi-retired and is engaged in a monthly or quarterly liquidation of securities. An enrolled agent course demonstrates the capital gain implication of this process, which affects taxable income.

Another instance creating extra income tax is when someone begins a self-employment activity – even as a sideline while continuing work as an employee. This business income incurs both regular income tax and self-employment tax.

An often overlooked matter that causes a tax debt is the nanny tax. This happens when someone is obligated to pay employment taxes on compensation to a household employee. These taxes are payable with the personal tax return of the employer.

Waiting until April to pay any of these tax amounts can incur interest. That is only avoided by two avenues, which are addressed in enrolled agent education. One exemption from interest arises if the balance owed with the tax return is less than $1,000. The other circumstance creating an interest exemption is withholding that matches all of last year’s total tax – or 110 percent of the prior year tax for taxpayers with incomes over $150,000. Interest charged for failure to pay estimated taxes in four installments is owed in addition to any penalty for not paying a tax liability by April 15 of the next year.

Estimated tax is based upon annual income. It is not determined from income in each quarter. Therefore, a calculation divides into four installments the expected tax determined by current year income, deductions, and credits.

An alternative to making estimated tax payments is increasing withholding. For example, a taxpayer with wage compensation can change paycheck withholding to cover the tax on both wages and other income sources. Box 6 on a W-4 is used to indicate extra withholding. In fact, paying income tax obligations via withholding can occur at anytime during the year. Equal withholding payments throughout the year are not required to avoid an interest calculation for delinquent estimated tax payment.

As the end of the year approaches, individuals with extra tax liability who made no estimated tax payments can save themselves from an IRS interest calculation by changing their withholding at work. This merely requires a projection of this year’s tax by an enrolled agent tax preparer using information that is mostly known near the year-end.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for enrolled agent study and tax professionals. Access to free questions for the enrolled agent tax is available on their website.

Article Source:

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Prev Post:
Next Post: