Do you find the task of filing your taxes daunting? This is a common sentiment shared by many. Fortunately, we offer a guide designed to simplify every aspect of the taxing process: 'Form 1040-ES.' This guide will expound how to e-file Form 1040-ES, as well as provide additional resources to ensure that the process is hassle-free and accurate.
What Is Form 1040-ES?
Form 1040-ES, known as the 'Estimated Tax for Individuals', is specifically designed for people who have income that isn't subject to tax withholding. This includes earnings from self-employment, interest, dividends, rent, or alimony. So, if you are a freelancer, independent contractor or landlord, you will likely need to know how to file Form 1040 ES.
When to use the 1040-ES form
Here are the primary scenarios when you should use Form 1040-ES:
Self-Employment Income: If you are self-employed and expect to owe $1,000 or more when you file your tax return, you should use Form 1040-ES to make estimated tax payments throughout the year.
Income Not Subject to Withholding: This includes earnings from interest, dividends, rents, alimony, and other sources that do not have automatic tax withholding.
Gains from Sales of Property: If you expect to realize a significant gain from the sale of property, such as stocks or real estate, and the gain is not subject to withholding, you may need to make estimated tax payments.
Changes in Income, Deductions, or Credits: If changes occur during the year that significantly alter your tax liability (such as a change in marital status, different income levels, or changes in deductions), and these are not reflected in the tax withheld from your salary, you may need to make estimated tax payments.
Additional Taxes: If you are liable for alternative minimum tax (AMT), self-employment tax, or other taxes, and these are not covered by withholding, use Form 1040-ES.
Income from Gig Economy Work: If you work in the gig economy, side jobs, or freelancing, and taxes are not withheld from your payments, you may need to pay estimated taxes to cover your tax liability.
Retirees with Insufficient Withholding: Retirees who do not have adequate tax withholding from their Social Security benefits, pensions, or withdrawals from retirement accounts may need to make estimated tax payments.
Farmers and Fishermen: Special rules apply to farmers and fishermen, requiring them to make estimated tax payments if they expect to owe a certain amount and meet specific income criteria.
So, using Form 1040-ES helps you manage your tax obligations by spreading your tax payments throughout the year, thus avoiding a large tax bill and potential penalties at tax time.
How to File Form 1040 ES
Electronic filing brings a level of convenience to tax submission that isn't achievable by traditional means. Here's how to e-file Form 1040-ES:
Step 3: Determine If You Need to Pay Estimated Taxes
Generally, you need to pay estimated taxes if you expect to owe at least $1,000 in tax for the current year, after subtracting your withholding and refundable credits, and if your withholding and refundable credits are less than the smaller of:
90% of the tax to be shown on your current year's tax return, or
100% of the tax shown on your prior year's tax return (your prior year tax return must cover all 12 months).
Step 4: Calculate Your Estimated Tax
Use the Estimated Tax Worksheet provided in the 1040-ES package.
Follow the instructions on the worksheet to calculate your estimated tax liability. This involves estimating your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
Step 5: Fill Out the Estimated Tax Worksheet
Enter your expected income for the year in the appropriate lines.
Adjust your gross income by subtracting any estimated adjustments (such as deductions for IRA contributions, student loan interest, etc.).
Calculate your estimated taxable income by subtracting your deductions (either itemized or standard) from your adjusted gross income.
Apply the tax rate schedule provided in the instructions to determine your estimated tax.
Step 6: Decide How to Pay
You can pay all your estimated tax at once or in four equal amounts.
Payment due dates are typically April 15, June 15, September 15, and January 15 of the following year.
Step 7: Fill Out the Vouchers
Fill out the Payment Voucher 1 if you are making your first payment. You will find your name, address, Social Security number, and the amount of your payment on the voucher.
Step 8: Submit Your Payment
You can pay online via the IRS Direct Pay service, by phone, or by mailing a check or money order along with the payment voucher.
If paying by check, make it payable to the “United States Treasury” and write your Social Security number, the tax year, and "Form 1040-ES" on the check.
Step 9: Keep Records
Keep a copy of your filled-out Form 1040-ES and any confirmation you receive after making payments. This will be helpful for your records and for preparing your tax return.
Step 10: Adjust as Needed
If your income or deductions change significantly during the year, re-calculate your estimated tax using the worksheet. Adjust your remaining payments to account for any increase or decrease in the estimated tax due.
Perks of Electronic Filing
E-filing is a fast, accurate, and easy method for both submitting your tax return and obtaining your refund. The internal software does the math for you which significantly decreases the risk of errors. Using the form 1040 ES e file option, taxpayers can also receive a notice of receipt from the IRS within 24 hours after the submission.
