2020 Quarter 4 Tax Deadline: January 15, 2021
What is the estimated tax method?
Estimated tax method is used when an individual has income that is not subject to withholding. Types of income that are not subject to withholding include earnings from rents, alimony, self-employment, dividends, and interest. This also applies to taxpayers who choose to not to have taxes withheld from other taxable income. 2020 has been a unique and unexpected year where millions found themselves unemployed. This means individuals who received unemployment and Social security benefits will also be using the estimated tax method in 2021.
Why does this matter?
January 15th, 2021 is the date for the 4th quarter estimated tax payment deadline.
How do you calculate estimated tax?
To calculate your estimated tax, individuals must consider taxable income, taxes, credits, deductions, and expected adjusted gross income (AGI). Those that fall under the category of sole proprietors, partners, and S corporation shareholders can use Form 1040-ES to calculate estimated tax while corporations generally use Form 1120-W. When using Form 1040-ES, as a starting point, it will be helpful to use credits, deductions, and income from the prior year.
It’s important to note that any miscalculations that result in earnings that are too high or low will require calculating from scratch. Incomes that are inaccurate will incur penalties which can be very costly for taxpayers. To avoid inaccuracies and penalties, individuals can find a tax preparation service that is up to date on all tax changes in 2020 so your estimation is accurate considering new rules. Tax laws change annually and require specialization in the field to understand the ins and outs and minor changes that can have a significant impact on accuracy. Tax changes in 2021 will also be vastly different from the tax changes in 2020 due to the impact of the coronavirus. Taxation can vary from state to state and even counties. For example, in a city with a population as large as Los Angeles, there will be specific tax requirements taxpayers may not be aware of. For Southern California citizens, finding a tax firm in Los Angeles now can ensure you have priority when many seek out the help of a tax preparation service in 2021.
For those looking for a tax preparation firm in Woodland Hills, it’s important to consider reviews, credentials, accuracy, and service. At MBA Financial & Accounting Solutions. We offer services including but not limited to individuals, corporations, partnerships, LLC’s, amendments, prior-years, estates, trusts, and tax exempt organizations. MBA accountants stay up to date on current federal and state tax laws as well as complex tax codes and new tax regulations in order to provide you with the best tax advice possible.