Business Taxes

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10 Oddball Tax Deductions

Updated for 2011

There are three approaches to estimating your tax for they year:

If you expect your current year income and deductions to be about the same as your previous year, base your current year estimated taxes on your prior year return.
Your prior year return must cover a full 12 months.
Apply the current year tax rates to your prior year taxable income.
Make sure you pay at least 90% of your expected annual tax liability to avoid an underpayment penalty.
- Example: If your annul estimated federal income tax liability plus your self-employment tax liability total $8,000, multiply $8,000 by 90%, which equals $7,200.
- The $7,200 is your required annual tax payment. At least this amount must be paid in order to avoid an underpayment penalty.
- Now, to figure your minimum quarterly estimated tax installment:
  - Divide the $7,200 by 4, which equals a minimum quarterly installment of $1,800.
  - You can remit the $1,800 using Form 1040-ES, Individual Estimated Tax Voucher.
Each quarterly minimum installment stands on its own.
- This means, you must pay at least 25% of your annual liability each quarter.
- If you pay less than 25% each quarter, you will be subject to an underpayment penalty for the quarter that is short.
  - Making up the short payment for one quarter in a future quarter does not eliminate the underpayment penalty for the quarter that was short.

Estimated Taxes: Estimating Your Taxes From Scratch