Well, the quick and easy answer is — if you are earning income and not having any taxes withheld from it, then probably yes.
As mentioned in the video below, the US operates on a pay-as-you-go tax system. In other words, as you earn money, you need to pay taxes on it. Usually, this is accomplished through employer withholding your tax from regular salaries and wages, but many times, people may have income that is not subject to withholding.
Some examples of income that typically does not have withholding and therefore may be subject to estimated tax:
- Self-Employment Income
- Interest and Dividends
- Capital Gains
- Rental Income
So, the bottom line is that if you expect to owe at least $1000 in taxes when you file your return next year, then you probably should be paying some estimated taxes now. In addition, if you do not pay enough in during the year, then you could be subject to penalties.
But — you don’t want to pay too much to the IRS and give them an interest-free loan of your money for a year.
Give our office a call and we can help you determine how much you need to pay in estimated tax.