Matters with the IRS

Are making Estimated Quarterly Tax Payments better than making a lump sum payment at the end of the year?

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According to Intuit Turbotax:

One of the more serious misconceptions taxpayers often have is that they can just pay their taxes in one lump sum at the end of the year. It's a mistake to think the IRS is OK with an end-of-year payment.

• If you owe more than $1,000, the IRS wants you to pay your tax throughout the year.

• Any missed payment will typically result in penalties and interest.

• Waiting until the end of the year to file and pay taxes may lead to other financial issues if you fail to reserve enough funds to satisfy your tax debt.

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If you decide to wait until the end of the year, most borrowers end up entering into an Installment Agreement with the IRS. When you are trying to buy a house, adding to your debt is a bad thing. And you have to make three separate payments before you can buy a house. 

There are those who say that you shouldn't give your money to the IRS until absolutely necessary, but in what I've seen in doing mortgages and taxes, making Estimated Payments is the best option.

If you overpay, you don't lose that money. You can either get it back as a refund or apply it to the following year's tax bill. 

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