Don't Overpay Your Estimated Taxes

Avoid an Underpayment

While an overpayment can be annoying, an underpayment can be financially painful. If you've estimated your taxes on the low side, you'll have to make up for that when you make your final payment.

For example, let's say at the beginning of 2008 you estimated your tax liability at $4,000, and paid $1,000 for each of the first three estimated tax payments. But you earned more than you expected, and your tax liability has increased to $5,000. As a result, you'll have to pay $2,000 on Jan. 15.

If you've significantly underpaid your estimated taxes, you can use IRS Form 2210 to determine the amount of any penalty. It's best to pony up back payments or penalties as quickly as possible. The IRS will frown on any attempt to delay or avoid payments, and doing so could lead to additional penalties and even legal action.

If all this math makes your head spin, consider using tax-preparation software such as Intuit's (INTU Quote) TurboTax or H&R Block's (HRB Quote) TaxCut. Or consult a bookkeeper or CPA to help you finalize your estimated payments for 2008 -- and figure out the numbers for 2009.