Estimating Your Taxes From Scratch

Estimating taxes for cash basis taxpayers on a calendar year:

When estimating your taxes, if you are a cash basis taxpayer, remember to apply the rules under the cash method of accounting for reporting income and expenses:

  • Report income only when actually or constructively received.
  • Report expenses only when actually paid.

Constructive receipt of income occurs when you have an unrestricted right to income you have not physically taken possession of.

For example, interest credited to your bank account in December 2012 but not withdrawn by you until January 2013 of the following year is reported in 2012, when it was constructively received.

Calendar Year

A calendar year ends on December 31. (A fiscal year ends on the last day of any month except December.)

Calendar year taxpayers include the 12-month period beginning January 1 and ending December 31 for tax-reporting.

Consider the following items when estimating your annual tax liability:

  • Your filing status:
    • Single, married filing jointly, married filing separately, head of household, qualifying widow(er)
  • Exemptions:
    • Do you have any dependents, such children or a parent that you are supporting?
    • Are you supporting an unrelated person who lives with you?
  • Gross income:
    • Consider all potential sources of income you expect to receive during the year.
  • Items you can deduct from gross income
    • Check the front of Form 1040 (through line 35) for items you may deduct from gross income.
    • Don't forget any carryover items from a prior year.
      • For example, if you had a capital loss that exceeded $3,000 in the prior year, the excess over $3,000 may be carried over to the following year.
  • Adjusted gross income (AGI):
    • This is the result of deducting allowable items from gross income (items listed on the front of Form 1040 through line 35).
  • Deductions from AGI:
    • Deduct the standard deduction OR itemized deductions, whichever is greater.
    • Deduct your allowable personal exemption(s)
  • Taxable income:
    • Once you know your taxable income, you can figure your income tax using the tax tables (if your taxable income is $100,000 or less).
    • If taxable income is over $100,000, use the tax rate schedules.
  • Tax credits:
    • Tax credits are subtracted from your federal income tax liability.
    • Tax credits are not deducted from self-employment tax.
  • Tax payments you may have already made:
    • If you already made tax payments that apply to the year of your tax estimate, don't forget to consider them.
  • Self-employment taxes:
    • Your annual federal estimated tax liability includes:
      • Federal income tax PLUS
      • Self-employment tax
  • Alternative minimum tax:
    • If the alternative minimum tax (AMT) applies to you, you must include it with your estimated tax payment.
  • Quarterly estimated tax payments:
    • Add your annual estimated federal income tax liability to your annual estimated self-employment tax liability and divide the total by 4.
    • Remit each quarterly payment by the due dates to avoid penalties.

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