HopefullyInLawSchool
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LSDefine
Simple English definitions for legal terms
estimated taxes
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A quick definition of estimated taxes:
Estimated taxes are taxes that people have to pay to the government four times a year. These taxes are for the money they earn that doesn't have taxes taken out of it automatically, like money from working for yourself or from investments. People have to guess how much they will earn for the whole year and pay a quarter of that amount each time. If they don't pay enough or miss a payment, they will have to pay extra money as a fine. It's important to pay enough estimated taxes to avoid getting fined by the government.
A more thorough explanation:
Estimated taxes are taxes that individuals must pay to the IRS on a quarterly basis for income that is not subject to withholding taxes. This includes income from self-employment, dividends, and other sources that are not subject to payroll taxes.
For example, if someone is self-employed and earns income that is not subject to withholding taxes, they must estimate the taxes they will owe for the year and pay a quarter of that amount each quarter. If they do not pay enough or miss a payment, they will be charged interest and a fine.
To avoid fines, a person must pay at least 90% of the taxes they actually owe for the year or 100% of the amount they owed the previous year.
Overall, estimated taxes are an important part of ensuring that individuals pay the correct amount of taxes on income that is not subject to withholding taxes.