Do I make my deductions while filing quarterly taxes or at the end of the year on my return?

by Amy M. Swartzfager, CPA | May 23, 2018
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I am new to self-employment, and I'm hoping someone could help me regarding filing quarterly taxes. When I make estimated payments, do I take my deductions then (such as for gas, etc.) or do I not take any deductions until the end-of-the-year return?

There are typically two goals with making estimated tax payments:

  • Avoiding penalties
  • Avoiding a large balance due when it comes to filing your tax return

To avoid penalties with the IRS, one must pay in either 90 percent of the tax due for the current year, 100 percent of the tax due in the prior year if adjusted gross income is $150,000 or less for married filing joint ($75,000 if single or married filing separately), or 110 percent of prior year tax due if adjusted gross income is more than $150,000 for married filing joint ($75,000 single). This amount needs to be paid evenly throughout the year in quarterly estimates or by withholding if you are considered an employee. In the situation of married filing jointly, the spouse’s withholding on wages would be taken into account for this calculation.

Pennsylvania has similar rules, but the requirements are 100 percent of the prior year tax or 90 percent of the current year tax due to be paid to avoid the underpayment penalty. There is likely a local estimated tax responsibility as well. Berkheimer, for example, requires that estimated payments be made. However, they are satisfied as long as some amount of estimated tax is paid before Jan. 15 of the following year. This can be made in one payment or four throughout the year. Tax agencies vary based on geography.
 
With that being said, the calculation of income for the current year for estimated tax payments should be your projected income less any expenses. However, there are some circumstances where basing estimated tax payments on the prior year tax due is more beneficial because less would need to be paid in throughout the year. If you are looking to avoid having a large balance due at filing time, then you will want to weigh these options.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Amy M. Swartzfager, CPA, is a senior tax analyst with API Technologies Corporation in Fairview, Pa. 

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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