Here Are 3 Ways To Estimate Your Taxes
If you haven’t filed your taxes yet, it’s time to decide whether or not to apply for an extension, and part of that application is estimating the tax due.
You had up until April 18 to file your 2021 tax return, but you can request an extension to make it until October 17. For taxpayers missing documents or dealing with a complicated tax situation, this gives you more time to file, this won't give you more time to pay. The IRS still anticipates that you will estimate your tax bill and settle it by April 18th.
Here are a few methods to calculate your tax bill for 2021 if you're unsure of how much you owe.
Reference What You Paid Last Year
One of the easiest ways to estimate the taxes that you owe for 2021 is to base it on your last year's income. You can do this by checking your total tax due for 2020. Line 24 of your 2020 tax return shows the total tax due.
From here you deduct the taxes you've already paid in 2021 including the withheld paychecks your employer has deducted. If you made estimated tax payments because you're self-employed, you are able to subtract any tax payments you made.
Subtract any tax credits you might be eligible for to further lower your tax obligation. And If your advance payments were less than the amount of credit you’re entitled to, you are allowed to claim an additional credit.
Estimate Your Taxable Income
Let's say in this scenario, you got a raise at your job or landed a job that pays you a better salary in 2021. You would need to calculate your taxable income to estimate the taxes owed since your earnings evidently changed.
You're able to do this by taking your gross income and subtracting exemptions and deductions that you are qualified for. After this step, you'll then reference where you fall in the tax bracket to determine your tax liability. Keep in mind, that wherever you fall depends on your income and filing status. These must be taken into account.
And once you've figured out your total tax due, you are able to deduct money withheld from your paycheck for 2021 and any tax credits you're qualified for to estimate your tax bill for 2022.
Using A Tax Software Or A Tax Calculator To Help Determine Tax Liability
Using tax software and a calculator is a less stressful approach to determining your tax liability. A lot of tax software filing programs will only charge taxpayers when they file so they're able to get a quote ahead of time.
Pros Of Using A Tax Software/Tax Calculator
Tax preparation software may guide you through the procedure in an understandable question-and-answer manner.
Some tax documents may be filled up automatically by the tax software.
You might be able to return to the tax program and finish what you started when you're ready to file your tax return.
Cons Of Using A Tax Software/Tax Calculator
Using calculators and tax software can sometimes lead to errors
May not be able to handle tax situations as well as tax professionals
Resolve Your Tax Bills
If you've found yourself in a nasty mess with the IRS, take a deep breath. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there's a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
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