Save Money on Taxes: Form 1040-ES
Before we get to it, let’s clear up what Form 1040 ES is used for. Form 1040-ES is used to figure and pay your estimated tax. Now, what's the estimated tax? The estimated tax is the method used to pay tax on income that is not subject to withholding. The IRS gives some examples including earnings from self-employment, interest, dividends, rents, alimony, etc.
How to Save Money on Taxes
So the simple trick to save money on taxes: file 1040-ES taxes quarterly. Many businesses don’t realize that they get penalized if they don’t submit an estimated tax payment each quarter. You could receive a penalty of 1% per month for the amount owed on your estimated tax payment. This can add up really fast by the end of the year and cause you to pay fees that can be easily avoided. Here are the due dates for the estimated tax payments (taxpayers calendar):
April 15 (July 15, 2020)
June 15 (July 15, 2020)
January 15 (following year)
A little trick that Financial GPS shares with clients are open up a separate bank account that is just for taxes. Each month, you transfer 25% of your net income to that tax account so that the money is stored away and not considered profit to be spent. Each quarter, you would locate the Net Income Number on your Income Statement, take 25% of that number and submit that amount as your estimated tax payment. This is just going to eliminate a lot of surprises at the end of the year and keep you ahead of the game.
Here's a video for more information on how you can save money on taxes and using Form 1040-ES.
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