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It’s not uncommon for me to sit down with a new client and show them, to their shock, that they’ve been paying avoidable penalties to the IRS for underpayments or late payments. Even if you get a refund, penalties are deducted from your refund before getting paid to you. After working your whole life for an employer where taxes are withheld from your check, people are not aware that certain circumstances require them to make estimated payments quarterly. They’re also not aware that the IRS does not view taxes withheld and taxes paid quarterly in the same. Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, here to guide you to successful, stress-free retirement while spending more and avoiding being killed in taxes. Essentially, if you have income that does not have taxes withheld, you should be making quarterly estimated payments. That can be businesses, that can be people making withdrawals from retirement accounts. What’s key to know is that the IRS views withholding taxes from payments and making quarterly estimated payments differently.

They view estimated payments as at-the-time received and they view withholdings as throughout the year. So for example, you could not make a tax payment all year long and at the end of the year do one gigantic withholding and satisfy your taxes throughout the year and avoid a penalty. On the other hand, when you need to make estimated payments, you need to do so in the respective quarter for the amount due. The IRS’s term for not satisfying this is underpayment. The IRS’s quarters are meant to line up with calendar quarters, but of course don’t land perfectly. For example, 2024 quarter one payment was due on April 15th, quarter two payment was due on June 17th, quarter three payment was due on September 16th, and quarter four payment is due January 15th of 2025. The next common dilemma I hear is, how do I know how much I owe? There’s a couple of ways to skin this cat, if you will. The most official way would be to do a tax projection calculation.

roughly on what you owe from a tax professional or using IRS’s form 1040-ES. Another way to go about this is to save a portion of revenue to a particular savings account earmarked for taxes. Another way to go about this is using the IRS’s rule which says if you pay 100% of what you owed in last year’s tax liability, you can avoid a penalty. So if this is all new to you, let’s talk about how to make quarterly estimated payments. The first thing I’m going to point out is I always suggest making payments through the IRS’s website and not mailing a check. It’s not a matter of if the IRS or Postal Service loses a check from you at some point, it’s a matter of when. I can personally attest that I’ve made electronic payments to the IRS that they even claimed they did not receive and I had to fight with the IRS for months to clear up.

So on top of using their electronic payment system, you want to be diligent to track all of your actions and payments made and document them. And additionally, I will go in and say I owe $10,000 per quarter. On quarter one, I’ll make that estimated payment $10,001. In quarter two, I’ll make that $10,002. In quarter three, I’ll make that $10,003. And in quarter four, $10,004. Now this is an additional backstop that I can lead myself to if I ever have to go back in time and see exactly when payments were sent and when they were received. So starting out, go to irs.gov. Keep in mind that it would be ideal to use a checking or savings account with these instructions. Using a credit card or debit card incurs additional processing fees. So you need a copy of your last tax return you filed to verify your identity to your name, your filing status, and all that must match what was reported on the last tax return. Once you’re on the IRS’s website, you can go to make a payment. And then when you go to pay now with direct pay, you put in what’s your reason for the taxes. In this case, estimated tax applied to your 1040 ES for the proper tax.

Enter your tax verification information. Enter the amount you’d like to pay. Review your information multiple times. Ensure everything is 110% correct. Now, submit your payment. Make sure to print your confirmation page for your records. And there you go. You’ve made an estimated payment and avoided incurring additional penalties. And now you have money to tip your bartender and not the IRS. Take action by putting a reminder in your calendar to make estimated payments before the end of IRS’s fiscal quarter. Dates change somewhat by year, so check them every year. Follow along with us and stay up to date by subscribing to our YouTube channel. And if you have any financial questions, you can send them to contact at bocaretirement.com. I’m Hunter Brockway, founder of Boca Retirement Strategies. Enjoy your successful retirement and thank you for watching. Bye. Before you go, if you’re looking for a free tax smart retirement plan tailored to your unique specific situation, you can head over to our website at bocaretirement.com.

Enter your information in the pop-up and we’ll build you a plan tailored to your unique specific situations at no cost or obligation. If for some reason that pop-up doesn’t show for you, if you click out of it, no worries. Just send us an email at contact at bocaretirement.com. Again, that’s no cost, no obligation. We’ll put together a simplified plan for you to help you take the next steps towards a successful stress-free retirement with more money and fewer taxes. See you over there.