How to estimate taxes for extension (US)

April 5, 2024 3:22 PM

We are having our 2023 taxes done by a local company, and they recently let us know that they would be filing an extension for us. I know we still have to pay an “estimated tax” for both federal and state (CO), but never having done that before, I have no idea how to (1) estimate fed and state tax, and (2) pay these. Please explain like I’m five. There’s a reason we had professionals doing this. (I’ve asked them for help, but they’re apparently very busy, so I haven’t heard anything.)
posted by blurker to Law & Government (14 answers total)

For your Federal liability:
https://www.irs.gov/individuals/tax-withholding-estimator
posted by phunniemee at 3:34 PM on April 5

Payment by check or money order can be made with a 1040-V and it contains information on how to submit payment by bank draft or credit card as well.
posted by soelo at 3:57 PM on April 5 [1 favorite]

When my CPA files extensions for me (which happens most years because I don't get it together to get all the information to him early enough), he also tells me what I owe on April 15th, and does the paperwork to get it debited from my checking account. Your company should be doing that for you.
posted by virve at 4:15 PM on April 5 [5 favorites]

If by "estimated tax" you mean that you're going to have to pay quarterly to avoid having a fine because the "amount you owe" on your yearly 1040 would be too much for the IRS' liking, you'll actually want form 1040-ES.

I've done estimated taxes for a few years, and it's all been handled by professional tax preparers for me. Basically, if you're not having enough tax withheld from your income (or there's nothing being withheld because you don't work a W-2 type job), you might end up incurring a penalty from the IRS if the amount you owe is over a certain threshold. All estimated taxes are doing is avoiding that penalty. It's best to let your tax preparers do their work, but it's basically the "amount you owe" divided by 4, sent quarterly. There's more to it than that, but that's a pretty basic explanation.

When I get my stuff back from my tax preparer, I get four 1040-ES forms, one for each quarter, along with their instructions on what to do, what to write on the check, how much to pay each quarter, and where to send it to. They also give me an addressed envelope for each quarter to put the payment in. Personally, just due to circumstances with moving and deaths in the family, I've paid late, and all that means is that I missed the 1st quarter payment that would be due April 15 and my second quarter payment due in June is double, but that should be handled by your tax people.

Personally, if you have tax preparers, I would just let them do their thing. They should handle it. Get mad if they don't.
posted by LionIndex at 4:18 PM on April 5

First, remember that you have probably already had most of your taxes withheld through the year. The portion you'd pay with the extension is only whatever you owe beyond your withholding. If you normally get a refund, and this year should be similar to previous years, then you don't need to pay anything additional.

And for the feds, at least, the failure to pay penalty is 0.5% of the unpaid taxes, per month. If your withholding is a bit low, and it turns out you owe an additional $1000, your penalty would be $5/month until you pay it.

So if your situation is largely the same as last year, the easy strategy would be to pay the same amount as you owed last year (or nothing if you got a refund), and just accept that you may owe a small penalty when you actually file.
posted by yuwtze at 4:20 PM on April 5 [1 favorite]

On re-read, I misunderstood the question. You can probably ignore my answer!
posted by LionIndex at 4:25 PM on April 5

Husband was self-employed and his income varied, so I just sent them random chunks based on guesswork, honestly, which is not good advice but worked for us.
posted by Peach at 4:58 PM on April 5

Response by poster: To clarify, this is not quarterly estimates (which are all I can find on the intertubes) but estimating the tax owed for 2023 (both Fed and CO).
posted by blurker at 6:22 PM on April 5

Hmmm. We have an accountant for the first time ever this year and they filed for an extension on our behalf and there was no mention of paying any estimated taxes… we do normally get a refund though.
posted by samthemander at 6:59 PM on April 5 [1 favorite]

You are able to use last years AGI, and pay the total tax from that period as a "best guess" for your tax liability this year and when your accountant files the extension they will add that check to your "estimated payments" so once you get the entire years income statements and finally do the final version you will not owe a penalty as long as 85% of what is owed is paid
posted by The_imp_inimpossible at 10:31 PM on April 5

For the federal aspect, the correct form/instructions are with Form 4868. You need to follow the instructions on that form and, to avoid a penalty/interest, you need to make a payment by April 15 that brings your total tax payments for last year up to at least 90% of the total amount you will owe for 2023. If you don't know the amount you will owe for 2023, you can try to take your best guess/estimate, possibly by using the amount you paid for 2022 as a baseline. If you get it slightly wrong, the penalties/interest are not that large.

For Colorado, the correct form appears to be here. Colorado also requires 90% of the tax to be paid by April 15 in order to avoid penalties. Again, if you don't know what you owe, try to estimate/guess, perhaps based on 2022.

Don't forget that you have probably already paid some amount of these taxes through W-2 withholding in 2023! It is possible that you don't owe anything more. (I.e., if you usually get a refund that means your W-2 withholding is more than enough.)

(If your tax preparer said they are filing extensions for you, they may be saying that you don't owe anything and they are simply filing a form to make sure you have the extension. Also, if your tax preparer is too busy to answer your questions about this stuff you should probably find someone else.)
posted by Mid at 3:48 PM on April 6

If you pay someone to do your taxes and they say you have to pay something, be it an estimate or an amount based on your tax return, they should tell you what that is. And if there is a form to submit they should do that as well.

So check the information they have provided so far to make sure you didn’t miss anything. And if that does not address your question the provider should. I would not just go and submit random forms or amounts myself.
posted by koahiatamadl at 5:05 PM on April 6 [1 favorite]

There's a bunch of information missing here. Why are they filling for an extension? Did you fail to provide something in a specified amount of time? Did they just take on too many clients? Was one of your W2s incorrect and the replacement hasn't shown up yet?

What are they proposing that they do at this point? (I get that they have stopped communicating with you, just these are questions that need to be addressed.)

Are your taxes so complicated you can't just take over and do it yourself? Most individuals taxes can easily be handled by low cost software/apps. If I got that kind of message from my accountant this close to filing and then they stopped responding to messages, I'd cancel my business with them and do it myself and then go after them through regulatory boards. Your best case scenario here is that they file for the extension and you overpay, until they eventually file for you.

A worst case is that they're so incredibly inept that they don't file for you at all.
posted by Candleman at 10:30 PM on April 7

Sorry, the 100% or 110% of last year safe harbor is only for quarterly estimated payments thru Jan 15, not the extension payment due April 15. To avoid penalties after April 15 you need to pay at least 90% of the current year liability. One source. Of course it is possible the same payment amount would satisfy both rules.
posted by Mid at 4:26 AM on April 9