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Pay As You Go Tax Questions
Pay-as-you-go (PAYG) is a system for businesses and individuals to pay installments of their expected
liability on their income for the current income year. PAYG tax is used in several different countries such as: Australia, United Kingdom, Ireland, United States, and several other countries. With so many countries using PAYG tax it is inevitable that questions will arise. Below are some of the most commonly asked questions answered by the Experts.
What does it mean if a farmers tax form is saying that they owe an underpayment penalty if their taxes were paid for the last year?
In the United States
is a pay-as-you-go tax, which means that tax must be paid as they receive income throughout the year. A person could do this through
or by making estimated tax payments. If that person does not pay enough taxes throughout the year they may have to pay a penalty for underpayment of estimated tax. Generally, most
will avoid this penalty if less than $1,000 is owed after subtracting withholding's and credits, if they paid at least 90%of the tax for the current year, or 100% of the tax shown on the return for the prior year. However, special
apply for farmers and fishermen regarding underpayment of estimated tax. First: the penalty will not apply if they file their return and pay all the taxes due by March 1, after the end of the tax year. Second: any penalty owed for underpaying estimated tax will be figured from one payment
, January 15, of the tax year. Third: the underpayment penalty for the current year is figured on the difference between the amounts of 100% of the tax shown on last year’s return, or 66 2/3% (rather than 90%) their current estimated taxes, whichever is the smaller amount.
If a person is sole proprietor of new small business, how should they file their taxes?
As sole proprietor a person would file their income and expenses on a 1040 Schedule-C tax form. This form will be attached to their personal 1040 and will include all income and expenses from their small business. The biggest concern a person would have would be the need to file Estimated Tax Payments on a quarterly basis. Income tax is a pay-as-you-go tax, most people have it withheld from their checks but since this is a self-employment income they will need to make quarterly payments to approximate their tax owed. Also they may be subject to self-employment taxes as well.
If a person makes $40,000 a year and has for the last 10 years and has never had taxes withheld from their paycheck, should they start withholding and are they breaking the law by not having these taxes withheld?
In most cases a person should have taxes withheld from their payroll or should make estimated tax payment. The
requires that a person does this. If more than $1,000 is owed at tax time there will be a penalty on the taxes owed.
What would the difference in payout be if a person were to change their dependents /exemptions from one to ten and what is the maximum dependence they should claim in order to get the maximum that they can get from the onetime $10,000 payment?
Typically income taxes are a pay-as-you-go tax, so while technically a person could claim as many W-2 allowances as they wish, they would want to be sure that the number they choose allows the withholding to closely meet or exceed the actual taxes they would owe for the year. If this person were to bump their allowances from one to six they would save approximately $550.00 in withholdings. There would still be roughly $880.00 withheld from their $10,000 so the person should still be fine for federal income tax purposes. To go any higher than that the withholding would begin to drop too low and they could find them self owing extra at the end of the year.
How much money should be put aside for taxes next year after recently becoming self employed?
As a general rule there are three distinct types of taxes that they should prepare for. The first two types are federal and
state income taxes
. The minimum they should plan for these two is 23% (15% for federal and 8% for state). This should get them close to where they should be for these particular taxes. The third is
self employment tax
, which goes to Social security and
. The tax rate for this tax is 13.3% for self employed people. Payments can be made by using form 1040ES available on the
Internal Revenue Service
’s web site.
Pay-as-you-go taxes can be a huge help with a person’s tax liability, but can also bring up many questions that need to be answered. When a person is self employed the pay as you go taxes is essential in being successful, if not for these taxes then every year people would have to strain their resources to come up with enough money to pay their taxes. The questions answered above are just a few of the questions in the huge field of tax laws that are ready to be answered by the Experts.
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