ACCOUNTING NOTES - Understanding tax payments: How to avoid underpayment, tax penalties, and interest

摘要

An old saying holds that death and taxes are inevitable. And making either as bearable as possible often hinges on avoiding unpleasant surprises. Ultimately, neither taxpayers nor the Internal Revenue Service (IRS) can do much about death. However, the IRS has established a kind of "pay-as-you-earn" system designed to make taxation an easier and more palatable process for all involved. Under this time payment program, taxpayers make contributions toward their income tax obligations over the course of the year. The system, of course, is intended to help ensure the government collects all the taxes properly due it. However, it is also intended to spare the taxpayer the shock of an unexpectedly large tax bill at filing time, as well as the considerable interest charges and penalties that can accrue should the taxpayer be unable to pay that bill in a timely manner. For most Americans, this pay-tax-as-you-earn program is manifest in the form of payroll deductions withheld from paychecks to make partial income tax payments to the IRS over the course of the year. However, for business proprietors who draw income directly from the profits of their enterprises (instead of wages) and for those who have substantial income from investments or other sources, the IRS also has instituted a system of quarterly payments. Most self-employed private practice optometrists today have incorporated their practices. Typically, they draw a paycheck from the practice corporation and are having income tax deductions made. However, many optometrists also draw dividends from their practice corporations. They may also have other sources of income such as investments or interest. That means optometrists need to have a good understanding of the income tax payment system if they want to be sure they will avoid any unpleasant surprises come income tax time. With a new tax year beginning and the tax filing season getting underway, now is an appropriate time to review the rules.