The third estimated tax payment is due on September 15th.

The third estimated tax payment is due on September 15th.

Estimated payments are required when you have extra income, such as from freelancing, rental income or investment income on which no taxes are automatically withheld. The IRS will add a penalty for underpaying your federal taxes if you owe more than $1,000.  This penalty is basically an interest charge for paying the IRS late.  Currently, the IRS interest rate on underpayments is 4%.  This penalty can be avoided as long as your total payments to the IRS (withholding plus estimated payments) are the lower of either 90% of this year’s tax (2010) or 100% of last year’s tax (2009).  So you’ll want to figure out how much extra tax you’ll need to pay in from your side job.  The easiest calculation is to use your marginal tax bracket for 2009, and add in the 15.3% self-employment tax.  This calculation actually overestimates your taxes, but it’s a good place to start if you want to keep the math simple.

Call for an appointment to calculate the ACTUAL estimated payment necessary based on your profit.

If you want to prepare it yourself the Estimated voucher and instructions for calculating the payment are available at www.irs.gov/pub/irs-pdf/f1040es.pdf