|Updated: 3/07/2005 11:10 am
||Published: 3/07/2005 11:10 am
Estimating your tax liability to derive an 'estimated tax' is the method you use to pay tax on income not subject to withholding. If you don't pay enough tax through withholding, you might have to pay estimated tax. Generally, if you have your own business, you'll have to pay your tax in the form of an estimated tax. You may also have to pay an estimated tax if you receive income such as dividends, interest, capital gains, rent, royalties, prizes or awards. Estimated tax is used to pay not only income tax, but also self-employment tax and alternative minimum tax. Remember, you may have to pay a penalty if you don't pay enough tax, either through withholding or by making estimated tax payments. When estimating your tax, it may be helpful to use your income, deductions and credits from the previous year's tax forms to guide you. You'll need Form 1040ES (10-40-E-S) to figure and pay your estimated tax. These are general tips to help you prepare your taxes. If you have specific questions, consult a tax advisor or call the toll-free number for federal tax information and assistance at 1-800-829-1040.