Pay As You Go Tax
Do you need to know what PAYG tax is and if you have to pay it? Are you a farmer and need to know why your tax return has a penalty on it? Paying taxes or trying to estimate them can be confusing for some. If you have questions or need assistance with your PAYG tax questions, consult an Expert online for guidance. Below are some of the most commonly asked questions answered by Experts.
What does Pay As You Go (PAYG) tax mean?
Pay as you go (PAYG) is a system for businesses and individuals to pay installments of their expected tax liability on their income for the current year. PAYG tax is used in several different countries. This means that tax must be paid as one receives income throughout the year. This is done through withholding 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 taxpayers 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.
What does an underpayment penalty mean for a farmer if their taxes were paid for the last year?
Special rules 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 due date, 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 a 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 would be the need to file Estimated Tax Payments on a quarterly basis. 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 the tax owed. Also, they may be subject to self-employment taxes as well.
If a person has not had taxes withheld for the last 10 years, should they start and is it required by law?
In most cases, it is required by law for a person to have taxes withheld from their payroll or make estimated tax payments. If more than $1,000 is owed at tax time there will be a penalty on the taxes owed.
What are the maximum exemptions one should claim to get 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 they owe 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 Medicare. The tax rate is 13.3% for self employed people.
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 these are essential in being successful, if not for these taxes then every year taxpayers would have to come up with a lump sum to pay taxes. The questions answered above are just a few of the questions in the huge field of tax laws that have been answered by Experts. Legal Experts are available day or night at your convenience.