Special Rules for Irregular Income…
08 JUL 2020

Posted by robbie Categories: BLOG Comments: Post closed for comments

SPECIAL RULES FOR IRREGULAR INCOME
& EXTENDED 2020 ESTIMATED TAX DEADLINES

If you receive income that does not have taxes withheld, such as business, self-employment or investment income, you may need to make quarterly estimated tax payments to avoid incurring IRS penalties when you file your 2020 tax return.

Ordinarily, the first two quarterly estimated tax due dates of the year are April 15 and June 15. However, the IRS extended both of these deadlines to July 15, 2020 due to the COVID-19 pandemic. You may make your payments for the first two quarters of this year (either separately or as one combined payment) at any time until that date. The deadlines for the third and fourth quarters currently remain September 15, 2020 and January 15, 2021, respectively. You may skip the January 15 payment if you file your 2020 return by February 1, 2021 and pay all tax due.

The IRS expects most estimated tax payers to pay the same amount each quarter; a penalty may be assessed if any quarterly payment is too low. For example, whether you make separate payments for the first two quarters of 2020 or combine them into one July 15 payment, the total tax you pay by that date (including estimated payments and any paycheck withholding) must usually be at least 50% of your required minimum payment for the year. Generally, the minimum amount you must pay during the course of 2020 is either 100% of your 2019 tax or 90% of your 2020 tax, whichever is less.

However, if your income is irregular throughout the year—for example, if you had very low income during the first half of 2020 but will begin earning more in July—you may qualify to make unequal estimated tax payments, or even skip one or more payments. In addition, if you make a substantial portion of your income from fishing or farming, you may be able to make a single, year-end estimated tax payment instead of paying quarterly.

A tax professional can help you determine your estimated tax payment requirements for 2020, and how to adequately document your income fluctuations if you choose to make unequal payments.

Contact us at (855) 205-8486