......when it relates to income taxes.
Weather is finally warming up in the Tri-Valley area. Summer is just around the corner. April 15 is in the rear view mirror. Your 2011 income tax return has been completed, filed, and paid on time....no more thinking about taxes until next year's return is due. Did I just hear a sigh of relief? But, wait! Now may be the perfect time for you to take a moment and look ahead at your 2012 estimated taxes to avoid paying penalties on any shortfalls.
Whether or not your anticipated 2012 income level will differ from your 2011 income, you can protect yourself from paying any underpayment penalties with a quick review of your current situation.
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As you know, we all must pay our taxes throughout the year. This is called the "pay as you go" system. For most folks, this means your income taxes are taken out of your paycheck and your employer sends the withheld amounts directly to the federal government. At the end of the year, if you paid in more than what you owe, the government refunds the overpayment. If you haven't paid enough to cover what you owe, then you have a balance due.
So, with all the taxes you already have to pay, how can you avoid paying an underpayment penalty, too? At the least, make sure you'll be paying in the same amount (100%) as your 2011 tax liability, located on line 61 of your Form 1040 or line 35 of Form 1040A. If you are a higher income taxpayer, pay in at least 110%.
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If you are an employee, look at your most recent paystub for the income taxes withheld so far this year-to- date. Using the amount that is withheld from each paycheck, calculate what the cumulative withholding amount will be by the end of the year. Compare that number with your 2011 tax liability (at 100% or 110%) to determine if you'll be coming up short or not in paying your 2012 estimated taxes. You can then increase your withholding by spreading any shortage over the remaining paychecks in the year.
If you are self-employed, you should be making quarterly estimated payments on your own. Just make sure you pay by the due dates. You can use the EFTPS system, paying electronically with no fees. You can register at https://www.eftps.gov/eftps.
You should not have an underpayment penalty if you pay in enough during the year to owe less than $1,000 by the April filing deadline.
Remember, there are two things certain in life: death and taxes.
Don't add penalties to your list.
Linda Koziol, Enrolled Agent
Office: 925-320-7801
Visit www.eastbaytaxpros.com for more tax news.
East Bay Tax Professionals is located at 6400 Village Parkway, Ste. 201, Dublin,
California.
Linda Koziol participates in a business network, BNI (Business Networking International). which is a group of local professional business owners that refer business between each other and to others. A new BNI chapter is meeting weekly from 8:30 - 10:00 AM each Thursday in Danville for networking and breakfast. If you would like to visit and promote your own business, call Linda at 925.320-7801 for more details.
