Estimated Tax Payments
I heard that expats must now pay 110% of their previous year's tax bill by January 31. Is there any truth to this?
Several formulas are used for calculating the how much tax you will owe in the coming year in order to make estimated tax payments.
The default formula for calculating estimated tax payments is to calculate 110 % of the amount owed in taxes for the previous year. For example, if the amount you owed in 2017 was $1,800, we would prepare estimated tax payment vouchers for $2,000 in 2018 (4 quarterly payments of $500), which would represent roughly 110% of what you owed in taxes for 2017.
This rule applies to all U.S. taxpayers and is not dependent on expat status.
I need to figure out what my estimated tax payments should be, but I won't have the final figures until later in the year. Can you prepare a draft for me now?
We have many clients living in low-tax countries who earn above the Foreign Earned Income Exclusion and need to make estimated tax payments to the IRS. These clients frequently do not have all the necessary figures available to them early in the year.
We handle these cases in the following way: the client completes our Tax Questionnaire using preliminary (estimated) figures, we prepare a draft of the return, that draft is then released to the client who uses it to make estimated payments. Then, as the final figures become available later in the year, we update the draft of the return and file it with the IRS.
I’m self-employed. TFX prepared my tax return but I received an IRS fee notice because I did not make appropriate payments before April 15. I'm unhappy.
We understand that it is very unpleasant to receive a fee notice. Unfortunately, this situation is completely out of our control as your previous year advisor was responsible for presenting you with IRS payment vouchers so that you could make quarterly tax payments.
Basically, if you owe over $1,000 in taxes for a given year, you are required to make estimated tax payments throughout the next year. If you fail to make these payments, the IRS will levy a penalty.
We can perform this service for you but unless you explicitly request it, we will assume that whoever prepared your tax return before us handled this properly.
I had my current year return prepared elsewhere but plan to use your services next year. I believe that I should be paying estimated payments but my last CPA did not provide the estimated vouchers. How should this be handled?
You must let us know about this. We will not simply assume that your previous preparer did not do their job properly and failed to provide you with estimated tax vouchers.
In order to correct the situation, we can prepare a tax return projection for the next year based on your current income and information about potential income increase if applicable. You will then receive estimated tax payment vouchers that will cover your obligation to the IRS to pay in advance (before January 31 of the next calendar year).
When you are ready to file your tax return, the preliminary draft will be adjusted using the actual figures. Upon adjustment, you may either owe more or qualify for a refund, but as long as the difference between estimated and actual amount owed is less than $1,000 you will no longer be subject to any penalty.
This service requires a retainer, with credit remaining to finalize your return when you obtain the final information.