How to Pay April 2015 Estimated Taxes
So here’s the deal. I have enough money in my bank account to pay the unexpected $5,443 that I owe in 2014 taxes. I do not have enough money in my bank account to pay that and First Quarter 2015 estimated taxes on the same day.
This feels really weird to write, by the way. How often do we say “yeah, I don’t actually have enough money for that” in public, and for something as important as taxes! I feel like federal government agents are going to rappel down from helicopters and knock on my door to say “We just read on The Billfold that you don’t have enough money to pay your estimated taxes!”
So here are my options as I understand them:
1. Pay estimated taxes in full on April 15, file an extension for regular taxes and pay the $5,443 with interest sometime before October 15.
2. Put estimated taxes on a credit card and get airline miles or something, which I am not actually considering as an option. This is the year of paying off debt, not adding to it.
3. Pay the $5,443 on April 15, pay what I can in estimated taxes on April 15, begin setting aside 20 percent of my income towards estimated taxes using the sub-accounts I just set up for that purpose, and slowly catch up over the course of the year.
That’s the one I think I’m actually going to do.
In this case “catch up” is probably going to mean: paying a flat 20 percent in the months of April through December and hoping that’s close to what I’ll actually owe in 2015, after deductions. This year, my tax burden after deductions was 18 percent of my income, so I’m banking on 20 percent over nine months coming out to around 18 percent total. Which… let me math at this for a minute… okay, 20 percent over nine out of 12 months is only 15 percent overall. Looks like I will need to catch up somehow.
As long as I pay at least as much in estimated taxes as I paid in 2014 taxes, I shouldn’t hit any underpayment penalties. The real question is how to start now and make sure I’m not in the same position this time next year: needing to put the money I’d set aside for First Quarter 2016 estimated taxes towards my 2015 taxes, and starting 2016 already three months behind on my estimated taxes.
And the other hard thing to write is that I don’t think I know how to solve that problem today. This is where I should probably call my CPA; he might have an answer I haven’t thought of. But I think the real answer is: pay what I can on April 15, pay 20 percent over the rest of the year, and keep my eyes open for places to catch up, because I’ll need to catch up at some point.
Do you have any other answers I haven’t yet thought of?
This story is part of our Tax Month series.