Make Sure You Know Your Quarterly Estimated Tax Responsibilities to Avoid Underpayment Penalties in 2022Articles/News, Hot Topics, Offshore Account Update
Posted on June 16, 2022 | Share
Most New Jersey residents think about taxes once a year—usually a few weeks or months before April 15. But, many taxpayers have an obligation to make quarterly estimated tax payments throughout the year. Taxpayers who fail to make estimated payments as required can face steep penalties, and they can increase their risk of facing a tax audit or investigation. Learn more from New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:
Understanding the “Pay-As-You-Go” Tax System in the United States
The United States has a “pay-as-you-go” tax system. As the Internal Revenue Service explains, “[this] means that you must pay income tax as you earn or receive your income during the year.”
For the vast majority of taxpayers, paying as they go means allowing their employers to withhold money from their paychecks for remittance to the IRS (and the New Jersey Division of Taxation). But, for those who do not have withholdings through their employment, it is necessary to make quarterly estimated tax payments.
When Must Taxpayers Make Quarterly Estimated Tax Payments?
The obligation to make quarterly estimated tax payments to the IRS applies to taxpayers who “expect to have a tax liability of $1,000 or more when they file their [annual] return.” This tax liability can result from various income sources. This includes everything from earning income as a sole proprietor or independent contractor to selling an investment or winning a prize or award.
What Happens if You Don’t Make Quarterly Estimated Tax Payments?
Let’s say you started a business in 2022 and were unaware of the quarterly estimated tax payment requirement. Or, maybe you didn’t realize that you needed to make estimated tax payments on rental income or gambling winnings. If you are behind on your quarterly estimated tax payments, what should you do?
At this point, you should not simply wait until it is time to file your annual return. If you do, this will increase the penalties and interest you owe, and it will also increase your risk of facing IRS scrutiny. Filing your estimated quarterly returns late also will not remedy your situation. Instead of going either of these routes, you should consult with a New Jersey tax attorney to figure out what you can do to protect yourself and minimize your liability for federal (and state) penalties as much as possible.
What if you are reading this because the IRS has imposed penalties for your failure to make quarterly estimated tax payments in 2021 or prior years? In this scenario, you should consult with a New Jersey tax attorney as well. While it isn’t ideal that the IRS is already looking into your tax history, you still have options available.
Get the Help You Need from New Jersey Tax Attorney Kevin E. Thorn
If you need help dealing with a failure to make quarterly estimated tax payments, we encourage you to contact us promptly for a confidential consultation. Call 201-355-8202, email firstname.lastname@example.org or send us your information online to speak with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, as soon as possible.