Plan Now for Quarterly Tax Deadline

Make sure you're making the proper quarterly payments, and don't forget all the little details.
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While many consumers plan to wait eight or nine months before they start filling out tax forms, quarterly filers have a deadline approaching in mid-September.

Most of those who estimate tax payments on a quarterly basis are self-employed, like freelancers, construction workers, landlords and independent doctors or lawyers. Those living on a pension also file quarterly taxes unless they opt to have taxes withdrawn from each individual payment.

Many small-business owners and nine-to-fivers with a separate income stand to benefit from such a plan as well, according to Peter Hukki, an enrolled agent with JK Harris, the nation's largest tax representation firm.

"If you have a side job -- say a business or a Mary Kay job, or what have you -- that's going to increase your income," says Hukki. "The taxes you have withheld at work won't necessarily cover the income you have in the year."

Quarterly installments are due April 15, June 15 and Sept. 15, with an end-of-year payment on Jan. 15. The final installment ties up any loose ends: If the taxpayer has underpaid, he may face a hefty bill and potential penalties, but if he has overpaid, he's in for a rebate.

Filers must pay a self-employment tax of 15.3% to cover Social Security and Medicare, on top of their average tax rate, which varies by income bracket. The rule of thumb is to pay quarterly installments of either 90% of projected tax for the current year or 100% of the tax paid last year.

Those who make payments based on projections of the current year's income face the risk of tax penalties at year-end if they underestimate earnings.

"You'll get hit with a failure to pay taxes penalty," which is currently around 6%, says Hukki. "The government wants their money now."

Those who make payments based on the previous year's taxes are shielded from such penalties, but may face a hefty payment at year-end anyway if they earn much more than they did the previous year.

Hukki suggests setting aside the taxable portion of income at the time it is earned, regardless of which strategy is chosen. He notes that those who cash out a lot of stock or rack up a large dividend payment, should also stash away the tax portion right away.

Otherwise, taxpayers "may find themselves short because they didn't plan properly for the end of the year," he says.

Finally, don't forget about the kids. Children who have stocks, bonds, CDs or are beneficiaries of a large fund must pay taxes, as do those who earn cash as actors, musicians or performers.

"Anybody who makes income is subject to income tax," says Hukki, "even though they may not be old enough to understand what's going on."