We have already gotten our federal tax refund back due to ease of filing online (woohoo!). For details on how to prepare for annual tax filings, see my post here.
One item that people can miss when they file their annual tax return is the estimated tax they owe to the Uncle Sam, which must be paid every quarter throughout the year. Salaried employees typically get taxes deducted from their paychecks based on their filing status, number of dependents, and a few other factors. If you have significant income (whether from salary or other sources), it is possible you are underpaying your tax from these deductions from your paychecks. The IRS requires you to make up for the difference via estimated taxes.
For the 2016 tax year, we have paid approximately $32,000 in estimated taxes and for 2017 tax year, we will be paying close to $40,000.
When you file your tax return, pay special attention to 1040-ES vouchers if you are using tax filing software such as TurboTax (or a tax accountant for that matter). There are four of these vouchers and you need to send IRS additional checks of equal amounts on 4/18/17, 6/16/17, 9/15/17, and 1/16/18. If you don’t pay these estimated tax amounts, you may be incurring an underpayment penalty on your tax return the next time you file tax (by April 2018). I would recommend putting in calendar reminders a few weeks prior to the four deadlines to make sure you are sending your checks in. If you filing using TurboTax, the estimated tax amounts and deadline are also on the cover page with the instructions. The penalty amount is significantly higher than any interest you might get from delaying a payment to the IRS, so it would make economic sense to pay for this early rather than incurring the penalty.
Another TurboTax Filing Tip
Recall from my last tax post (link) that we used TurboTax to file our return. We are also helping one of our relatives with their tax filing and were using the same CD. Although the CD can be shared, each installation only comes with a single state return. As our relatives live in another state, TurboTax wanted to charge us $60 for the second state. A workaround would be to install the CD on another computer; this way, we were able to get the reduced price of $20 for E-filing the state return (or $0 for paper filing).