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FAQ

At what level of income are income taxes in the USA due quarterly instead of annually?
There is no specific level of income at which income taxes are due quarterly. Rather, it depends on the manner in which you receive your income.Every taxpayer is required by law to prepay a pro-rata share of their tax each year by the four quarterly tax payment dates (the first non-holiday weekday on or after the 15th of April, June, September, and January). Most taxpayers will fully satisfy this requirement through employer withholding; the only people who therefore must use estimated tax payments are those who have significant income that is not in the form of wages or salary, and thus not subjected to employer withholding.If you receive income in the form of wages or salary, your employer is required to withhold taxes from your paycheck and transmit those withholdings to the IRS on a fairly specific schedule. Employers must withhold these taxes from every paycheck according to the calculations mandated by the IRS. As a result of this ongoing withholding process, most people have enough prepaid tax withheld from their paychecks to satisfy the quarterly prepayment requirement.However, if you end up owing more than $1000 in tax, after subtracting employer withholding and refundable credits, you must have paid estimated taxes by the required dates to ensure that, between estimated tax payments and employer withholding, you made sufficient prepayments toward your total tax obligation before the due date of that quarter to satisfy the legal requirement in that quarter. There is more than one way to compute how much tax must be prepaid in each quarter, and so determining what the minimum required to be paid for individuals with complex tax situations can be quite difficult.Note also that the rule is not that you owe the IRS more than $1000 at the end of your return. Rather, it’s “owe over $1000 more in tax than the sum of your withholdings and refundable credits”. If your tax exceeds your withholdings by $1200, but you get a refund because you have $2021 in nonrefundable credits, you may be assessed a penalty. Do not include anticipated nonrefundable credits when figuring how much tax you must prepay.If you receive a significant amount of nonwage income, it’s probably in your best interest to retain a tax accountant to ensure that your income is properly accounted for and the appropriate quarterly estimated tax payments made at the proper time to avoid the risk of being assessed an underpayment penalty. If, however, most or all of your income is from a regular wage or salary, you can simply make sure your W-4 withholdings are sufficient to ensure that your employer withholdjngs are enough to cover your anticipated tax obligation.
What is the advance tax?
Advance Tax is a tax which you pay in advance in the same year in which you earn income. Since you pay, during the course of your earnings, it is also named as “Pay as You Earn” tax. The good part is that you need to pay it in installments throughout the year and not in the lump sum.Who is required to pay Advance Tax?Under Section 208 of Income Tax Act, 1961, whose estimated tax liability after deducting the TDS is Rs. 10,000/- or more is required to pay this. So, if you are a salaried person, then you are not required to pay as the tax is already deducted by your employer. But, in case you have other incomes also, then you need to check your tax liability.Use our tax calculator to calculate your tax liability.However, there is an exception to this. If you are as the resident senior citizen (over 60 years) who do not have any income from business or profession, then there is no need for you to pay advance tax.Since you have now understood that you are liable to pay advance tax, let’s discuss when you are supposed to pay Advance?.You are required to pay the advance tax in installments instead of lump-sum. There are different due dates for paying the different installment over the year. In FY 2015-16, the due dates and percent of advance tax were different for corporate taxpayers and individual taxpayers. But from the FY 2016-17, both categories of taxpayers have been brought at par.The due dates for Individual Tax-Payer’s for FY 2018-19 are:Taxpayers covered under the presumptive scheme are required to pay the whole of tax at once before 15th March. Thus, persons who are opting for 44AD or 44ADA need not to pay the advance tax in 4 installments i.e. need to pay in one installment only in the month of March [For FY 2018-19, due date is 15-03-2019].Click here to read more
What is the difference between an ISO and an NSO?
The differences all have to do with taxes:Defined: More formally known as Qualified Incentive Stock Options (ISOs, aka statutory options) and Non-qualified Stock Options (NSOs or NQSOs). The qualification refers to the special tax treatment that ISOs get. ISOs are only for employees whereas contractors, business partners, as well as employees can get NSOs.AMT or OIT: The main difference is the immediate tax treatment. When you exercise either stock option, there is a spread between the exercise price and the current Fair Market Value (FMV) that is subject to Tax. ISOs receive special tax treatment and are exempted from the immediate ordinary income tax on the spread. However, exercising an ISO is subject to Alternative Minimum Tax (AMT) which comes into play for wealthier tax payers or when the spread is large. In all cases, AMT rates are still lower than OIT rates by definition. Moreover, the NSOs are subject to the high ordinary income tax rate on the spread including Medicare and Social Security Taxes.Expiration: ISOs only apply while you are employed at the company and cannot be extended beyond 90 days after you leave. NSOs don’t require employment and can be extended well beyond 90 days. ISOs can only last 10 years before they must be exercised regardless of whether the holder is still employed at the company.Disqualifying Dispositions: If the ISOs are sold during the same tax year as the exercise, then you will pay ordinary income tax on the spread between the exercise price and the actual sale price. This will be a disqualifying disposition and you will no longer be subject to AMT on the spread between the exercise price and the FMV. If an ISO is not sold the same year as the exercise but still within 1 year of the exercise or within 2 years of the grant date, then it is also a disqualifying disposition. In this case, the spread between the exercise and the FMV will be taxed as ordinary income and the spread between the FMV and the final sale price is taxed as a short term capital gain. A qualifying disposition gets long term capital gains treatment and requires the sale to occur more than 1 year after the exercise and more than 2 years after the grant date.Withholding Tax: NSO tax is withheld at the point of exercise whereas the potential AMT on ISOs isn't due until you file taxes next April. However, you can file an 83(i) election to defer NSO taxes for 5 years. Although withholding is mandatory for employees, contractors can get a 1099 and handle their own quarterly estimated taxes. Similarly, disqualifying disposition of the ISOs by selling during the same tax year as the exercise will trigger ordinary income tax which is required to be serviced by quarterly estimated tax payments.Estimated Tax Payments: The minimum NSO exercise withholding requirement is only 22%. Many companies try to ethe right amount but it isn't very easy. When you file your taxes, you will true it up to the required amount. That could result in a refund or additional taxes. Any shortfall subjects you to interest penalties and estimated quarterly taxes. If you sold ISO shares, you are also responsible for paying quarterly estimated taxes which you calculate yourself. If you don't pay enough, there are interest penalties when you file next April.Double Taxation: If you sell ISOs after the tax year of the exercise, then you will be subject to AMT for the year of the exercise AND be subject to capital gains tax on the profits from the sale for that subsequent tax year. Those profits are calculated based on the spread between the final sale price and the FMV and the exercise price (see 4) even if you have paid AMT on the exercise. See this primer for recovering the AMT via credits.Selling the Same Year: In situations when both ISOs and NSOs are sold right away in the same tax year, selling the NSO results in short term capital gains on the profit between the FMV at the time of exercise and the final share price. Since the STCG rate is currently the same as the ordinary income tax rate, it is almost a wash with selling ISOs where profit will be final sale price less the exercise price. Although the tax rates are the same, the difference is that a portion of the income from the sale of NSOs above the FMV will be capital gains which can be offset by other capital losses you may have that tax year. There is no similar offset for the ordinary income tax gains from selling your ISOs during the same year as the exercise. However, the ISO income from the disqualifying disposition isn’t subject to Medicare or FICA tax.Reducing AMT: If you exercised the NSOs and paid the proper amount of taxes, your Alternative Minimum Tax (AMT) on any ISOs exercised the same year goes down. This makes your overall optimization challenge to be a good spreadsheet problem. This last scenario means that in a given year involving exercising and selling, you may want to sell the NSOs first because you have a higher cost basis and hold the ISOs for long term capital gains eligibility because the AMT is low or zero.100K Limit: Because of their favorable tax treatment for most people, the amount of ISOs that become eligible for exercise each year is limited to $100,000. This is calculated by multiplying the number of shares that become eligible for exercise (vest) in any given year by the FMV at the time of the grant which is usually the exercise price. This limit causes larger grants to be split into ISOs and NSOs. Individuals who have both should consider item (9) to maximize their benefits.Payroll Taxes: Although ISOs can trigger ordinary income taxes in the cases of a disqualifying disposition, it is still cheaper than the OIT paid on exercising an NSO because Medicare and FICA tax don’t apply to an ISO DD.Check here for more ways to save money on stock options: Ways to Reduce Stock Option Taxes
What information do I need for filing a tax extension for 2018?
Unless you are presently outside the territory of the United States, it is too late to file an extension for a 2021 calendar-year personal income tax return, and too soon to file on for a 2021 return. A request for an extension must be filed on or before the due date of the return in question, which for a personal income tax return for a taxpayer for calendar year 2021 who is presently in the United States was April 17, 2021. That is, as I write, yesterday. Meanwhile, you cannot file a return of any sort for tax year 2021 prior to the start of the 2021 tax season, which hasn’t been announced yet but will typically be near the end of January, 2021. If you file a return prior to the start of that year’s tax season, the IRS will simply sit on it until that date.Thus, unless you were physically outside of the United States on Tuesday, April 17, 2021. it now too late to file an extension for tax year 2021. You can file one, of course, but it will be denied, and you will be afforded no relief. You should file your regular return as soon as possible to minimize the penalty for late filing. If you had a legitimately exceptional reason as to why you could file neither your return nor an extension before the due date, you can address that with the IRS once they assess the penalty by requesting an abatement using Form 843.If you were physically outside of the territory of the United States as of Tuesday, April 17, 2021. you still have two months to file your return or for an extension on Form 4868. You will need to pra statement with your return or extension application stating that you were outside the United States on the due date of your return.For reference, the only information you must pron Form 4868 is your name, address, tax identifier, and good-faith estimates of your tax liability for the tax year in question and of payments made toward that liability. The estimates need not be correct, but if the IRS determines that your ewas not “reasonable” they may void your extension and impose late-filing penalties, the request for extension notwithstanding.
What is penalty under section 234A, 234B, 234C under income tax act?
Each and every product we use or service we consume comes with an expiry date or due date. Income Tax returns are not an exception to this. On one side Income tax is always an important aspect in the growth model of an economy, but on the negative side, tax liability is felt as a burden on tax payer. How worse it would be to a tax payer if an extra burden is added to the tax liability? Sounds unjustified! But it’s true; if you haven’t submitted the income tax returns within due date or paid tax within the prescribed time-limit; extra burden comes in your way along with tax liability. It all happens in the form of ‘INTEREST‡ which is collected as a penalty and it accumulates till the default continues. Don’t be too worried and be thankful to the Income tax department, because the interest here is a simple interest and not compound interest or other kind.Under Income tax Act 1961, interests are levied on different kinds of defaults. Most important and frequent among them is Section 234A, 234B and 234C which deals with delay in filing income tax returns and delay in payment of advance tax. The individual provisions of these sections are discussed below:***SECTION 234 A ‡ Default in filing return***It is mandatory to file your income tax returns within the due date. Due date for individuals is 31 July of every year. However, one must note that the due date is extended till August 31 for the Assessment Year 2015-16. Consequence of not submitting your IT returns within due date is Penalty.Here, Penalty for the delay is in the form of interest @ 1% per month on the total tax liability. Important note is that any fraction of a month is treated as a full month. Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144.Interest under section 234A is levied on the amount of tax as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by advance tax, tax deducted/collected at source, relief claimed under various sections like sections 90/90A/91 and tax credit claimed under section 115JAA/115JD. Also note that interest under Section 234A is not payable if you don’t have any remaining liability to pay. Interest would not be payable in a case where tax has been deposited within due date of filing of income tax return and return is filed after due date.***SECTION 234 B ‡ Default in paying advance tax***Interest under section 234B is levied when the taxpayer has defaulted in advance tax payment; or where the advance tax paid by the taxpayer is less than 90% of the assessed tax. So, what is advance tax?Advance tax is the tax paid in installments by the tax payer where the total tax liability exceeds Rs. 10,000/- in any financial year. The interest is chargeable at a rate of 1% per month till the remaining tax liability is paid. If the Income tax department extends the due date for filing returns, you get benefit under section 234A but you cannot get benefit under section 234B and 234C, since these sections deals with Advance tax. Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short paid. Interest under section 234B is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.***SECTION 234C ‡ Default in payment of advance tax on due date***Non-payment or short payment of advance tax is covered u/s 234B, whereas 234C covers situations of installments not paid within the due date. 234C levies interest @ 1% per month for delay in payment of installments of advance tax.Advance tax is paid on the following dates of a financial year: On or Before In case of a Corporate Taxpayer In case of a Non-Corporate Taxpayer15th June         Up to 15% of advance tax payable             NIL15th September Up to 45% of advance tax payable Up to 30% of advance tax payable15th December Up to 75% of advance tax payable Up to 60% of advance tax payable15th March      Up to 100% of advance tax payable     Up to 100% of advance tax payable For corporate assessee, interest under section 234C is levied @ 1% for a period of 3 months on the differential amount (Advance tax to be paid less actual advance tax paid) for the first three installments and 1% for 1 month, in case of shortfall in payment of last installment.In case of non-corporate assessee, interest under section 234C is levied @ 1% for a period of 3 months on the differential amount (Advance tax to be paid less actual advance tax paid) for first two installments and 1% for 1 month in case of shortfall in payment of last installment.*No interest will be levied in case of any shortfall in payment of advance tax due on the returned income if:*1. There is undereor failure to ethe capital gain amount or income such as winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.2. The assessee has paid the whole tax payable amount in respect of such income on the due date of payment of advance tax or if no installment is due then such tax is paid before the end of the financial year.Apart from the above sections, there are other sections as well such as 234D (http://www.incometaxindia.gov.in...) which deals with excess refund. Here the assessee shall be liable to pay simple interest at the rate of 0.5% (http://www.incometaxindia.gov.in...) on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. Section 220(2) deals with delay in payment of amount specified in notice of demand. Here, a simple interest of 1% per month is calculated on the amount specified in the notice of demand and the due date is the date mentioned in the notice. Be Aware of the Due Dates and file your returns and pay taxes in time which reduces the unwanted liability. You can claim many benefits if you have filed your IT return on time (Sweet 16 Benefits of filing Income Tax Return this season!). So go ahead and file your income tax returns with File Income Tax Return Online, IT Return Service,Income Tax Efiling, India| FinMart Your 360° Online Financial Supermarket, FinMart Online Financial Services, One Stop Solution for All Financial Needs (File Income Tax Return Online, IT Return Service,Income Tax Efiling, India| FinMart.com)  (File Income Tax Return Online, IT Return Service,Income Tax Efiling, India| FinMart.com)
What amount of money will the IRS take from you in overdue taxes?
You will be charged the amount you owe plus interest and penalties from the due date of the return. If you filed late you will receive a late filing penalty also.The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.If you did not pay 80% pre-payment of taxes, you may also be charged an Estimated Tax Penalty.Interest will be charge at the current rate of interest on money due the IRS.You may go to this website if you have additional questions: Topic 653 IRS Notices and Bills, Penalties, and Interest ChargesHope this is helpful.
Do I need to pay quarterly estimated taxes on January 15 for Q4 2021 if it was my first quarter reporting income?
Jan 15 is the due date for making Q4 tas payments. Did you start self-employment in the 4th quarter 2021. I would get with a tax professional so you can calculate what tax is due and any required forms are completed on time. You don’t prenough information in your one sentence to give you a full and correct answer.
Should the IRS pay tax payers interest on all funds withheld from us over the course of the withholding year?
No. You’re mixing two separate issues ‡ escrows and taxes.Funds in escrow are held for the benefit of someone else ‡ not the escrow company or bank which is holding the funds. The case says that banks who are escrow holders owe interest on the funds they hold for others.Funds withheld from your paycheck are simply installment payments of the taxes you are estimated to owe the IRS. In other words, it’s the IRS‡ money ‡ they are not holding it for you ‡ so they don’t owe anyone interest on it.Note that the IRS does pay interest on money they refund.