Estimated tax payments allow an individual to properly budget and forecast their financial standing during the tax season. Estimated tax payments enable a taxpayer to align finances and evaluate their current financial condition or placement.
For nearly all taxpayers, the due date for the first tax payment is April 15th of each year–this is also the same day where the return is due for the previous year. Estimated tax payments are widely elastic to an individual’s adjusted gross income. The income tax, which is the predominant federal tax, is based off of coordinating tax brackets which weigh an individual’s salary and attach a corresponding tax percentage or rate to it.
The United States federal tax system is a progressive model where higher incomes yield higher taxation rates. Once the tax rate has been established through a review of gross adjusted income the taxpayer must then take note of all the deductions, write offs, and tax credits associated with their tax application. These three vehicles are all forms of tax planning which decrease one’s taxable income yielding a slighter payment or larger tax return.
To estimate a tax return an individual must subtract the total amount of deductions from their gross income. Following this simply subtraction, the individual must attach the corresponding percentage found in their salary’s tax bracket. If the number is greater than the amount withheld throughout the year during normal pay periods the individual can observe their estimated tax payments. If the number is less, which is usually the case, the taxpayer will receive a tax refund.