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Figuring Estimated Tax Payments

To figure your estimated tax, you must take into account your:

  • expected adjusted gross income or AGI,
  • taxable income,
  • taxes,
  • tax deductions and
  • tax credits for the year.
How to calculate your estimated tax?

First estimate your adjusted gross income (AGI) which is the expected total income minus adjustments.

What does total income include?

Remember that your total income includes all the taxable income you receive during the year, whether or not tax is withheld from it.

You then subtract your standard deduction (or estimated itemized deductions) and your exemptions from your AGI.

Figure the tax using the 2007 tax rate schedules (found on the last page of Form 1040 Instructions). Finally, subtract any tax credits you will claim and add other taxes you will owe. The result is your estimated tax liability.

What is the required annual payment to avoid a penalty?

You do not have to pay the entire amount of your estimated tax liability during the tax year. The annual amount your are required to pay is the smaller of:

  1. 90% of the expected tax for the 2008 year or
  2. 100% of the total tax on your 2007 tax return

Subtract your expected withholding from your required annual payment to find the amount your must pay by making estimated tax payments.

If your withholding is expected to equal or exceed your required annual payment or if your expected total tax minus your withholding is less than $1,000 you are not required to make estimated tax payments.

Where to find Estimated tax payment worksheet?

Estimated tax payment worksheet is found in the Form 1040-ES, Estimated Tax for Individuals. This estimated tax payment worksheet will help you calculate the estimated tax you must pay to the IRS. Keep the estimated tax worksheet with your tax records - do not send your worksheet for estimated tax to the IRS with your estimated tax payments of tax return.


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