Kids & Taxes: Do Kids Need to Make Estimated Tax Payments?
Kids & Taxes: Do Kids Need to Make Estimated Tax Payments?
If you have kids who are in business for themselves, then just like adults, they may need to make estimated tax payments. Here’s a brief summary of who needs to make estimated tax payments and how to make them.
The federal income tax system is a pay-as-you-go tax system. That means you pay taxes as you earn income throughout the year. If you are an employee of a company, you do this through withholding. If you are self employed, you do this through estimated tax payments.
The general rule is that you must make estimated tax payments if you expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and tax credits (such as the Earned Income Credit or Retirement Savings Credit).
Also if you havenít paid in at least…
* 90% of the tax due on your current year tax return, or
* 100% of the tax due on last yearís tax return
then you may need to make estimated tax payments.
Generally, you will estimate your tax liability for the entire year and divide that amount by four to determine your quarterly estimated tax payments. The IRS has calculators on their website to help with this.
The due dates for estimated tax payments are:
April 15
June 15
September 15
January 15 the next year
If any of these fall on the weekend or a holiday, then your payment is due on the next business day.
Form 1040-ES is used to make estimated tax payments.
One note regarding estimated tax payments: if the person who owes estimated tax payments has other income from an employer, they can increase the withholding from the other income source to avoid having to make estimated tax payments. For example, if Tommy expects to owe taxes because of his lawn mowing business, but he has another job when he’s not mowing lawns, he can ask his employer to increase his taxes from his job so he doesn’t have to make estimated tax payments on the income he earns mowing lawns.
Parents: want to learn how to minimize your family’s taxes? If you have a small business, or if your child has their own business, you’ll want to learn how to hire your children (insert affiliate link) to help minimize your family’s tax burden.
Kristine A. McKinley, CPA, and CFPÆ, offers financial and tax planning on an hourly, fee-only basis. She specializes in helping home based and online business owners understand and minimize their income taxes so they can keep more of their profits. Link to tax blog: www.internetbiztaxtips.com