Didn’t we just wrap up tax season? Well, like it or not, another deadline is upon us.
Tax Day is coming tomorrow, June 15th, for anyone required to make quarterly estimated payments. It’s also the day for American citizens living abroad to file their 2016 tax returns.
Estimated Tax Payments
If you work as an independent contractor, or are otherwise self-employed, your income isn’t subject to payroll tax withholding. This generally includes sole proprietors, partners, and S corporation shareholders who expect to owe tax of $1,000 or more when they file their annual tax returns. In addition, individuals receiving investment earnings (interest, dividends, capital gains), alimony, and prizes and awards must also pay quarterly estimated taxes. (Note: Estimated tax requirements are different for farmers and fishermen. You can find more on these special estimated tax rules in IRS Publication 505, Tax Withholding and Estimated Tax.)
The table below shows the estimated tax due dates for 2017. Note that you can file electronically or via regular mail.
|Payment||Due Date*||For income received|
|1||April 15||Jan. 1 through March 31|
|2||June 15||April 1 through May 31|
|3||Sept. 15||June 1 through Aug. 31|
|4||Jan. 15 of the next year||Sept. 1 through Dec. 31|
*If the 15th is on weekend or federal holiday, the estimated payment is due the next business day.
Payments made on estimated taxes do not necessarily have to be equal. This is helpful for people with fluctuating or seasonal income, or those receiving unexpected earnings from their investments. If you fall into this category, you can make annualized income estimated payments, which means you only pay taxes in the quarters where you actually make money. This is more complicated and requires more accurate record keeping, so be sure to reach out to your BGW tax professional for help with this.
Why bother with quarterly estimated taxes? Because if you don’t pay enough tax through withholding and estimated tax payments, the IRS could slap you with a tax underpayment penalty or late fee, even if you are due a refund when you file your tax return in April. So while it’s a pain to figure and pay estimated taxes, forking over more money to the IRS in penalties is worse.
U.S. taxpayers living abroad have a special deadline to file their annual tax returns. It's an automatic extension from the April due date to June.
For people in this situation, tax payments were due by the regular April deadline (this year April 18th), but the return itself wasn’t due until June 15th. If you didn’t pay the IRS back in April, don’t worry too much; IRS won’t assess a failure to pay penalty. You may be subject to a bit of interest though.
Overseas taxpayers must convert any foreign currency they received to U.S. dollars when filing their U.S. tax return. Generally, IRS accepts any posted exchange rate that is used consistently. When valuing currency of a foreign country that uses multiple exchange rates, use the rate that applies to your specific facts and circumstances. Taxpayers generally use the yearly average exchange rate to report foreign-earned income that was received regularly throughout the year. However, if you had foreign transactions on specific days, you may also use the exchange rates for those days.
Stumped or need more time? Give us a call. We can help you file an extension which will give you until October 18th, 2017 to get your return filed. And then we’ll get to work with you devising a less rushed approach for next year.
We regularly tell clients that tax planning is a year-round process. Whether you’re paying estimated taxes, filing from abroad, or adhering to “normal” tax deadlines, being prepared means you’ll avoid the last-minute stress and be in better position to work on strategies that can save you money next year. As always, we’re eager to help.
Are you in the habit of making estimated payments? Please post your comments and questions below!