Will You Owe Estimated Taxes for 2007?
 
January 2007

As you begin to prepare your taxes for 2006, it's not too early to start planning ahead for 2007. Your first order of business should be to make sure you are paying enough in taxes throughout this year so as to avoid a penalty for under-paying. It's too late to worry about this for 2006. If you end up owing a penalty for not paying enough of your taxes before the end of 2006, just file your taxes for 2006 and let the IRS calculate any penalty you may owe.

As a family child care provider, you do not have taxes withheld from your income (unless you are incorporated). Therefore, you have to take responsibility to make sure you are paying in enough taxes throughout the year. The IRS does not want to wait until the end of the year to get the taxes you owe. One way to pay in your estimated taxes is to file a quarterly IRS Form 1040ES Estimated Tax for Individuals.

If you meet at least one of the following requirements, you don't have to file this quarterly form:

  • In 2006, you had no income tax liability.
  • You estimate that your family will receive a tax refund for 2007.
  • You estimate that you will owe less than $1,000 in taxes (after subtracting any withholding) by the end of 2007.
  • You estimate that the total tax payments that you or your spouse (if filing jointly) will make during 2007 will be at least 90% of your total tax bill for 2007.
  • You estimate that the income tax that will be withheld from you (if you also work outside of your home) and your spouse in 2007 will be equal to or greater than your total tax liability for 2006.
Most providers who are married can avoid having to file Form 1040ES simply having their spouse withhold enough taxes from his paycheck. If you owed more than 10% of your total tax bill at the end of 2006, then you might want to have your spouse withhold more in 2007. Your spouse can ask his employer for a copy of Form W-4 Employee's Withholding Allowance Certificate to increase his withholding.

If you are single, or if your spouse is also self-employed, you should probably file estimated taxes using Form 1040 ES. This form is due April 15, June 15, September 15, and January 15. The form is very simple; you merely indicate how much money you are sending in. To download a copy of Form 1040 ES, visit the Tax Forms page.

 
Tax Tip:  If you use a tax professional to do your taxes you want to be sure that this person understands the many unique tax rules that affect your business.

Adapted from the Redleaf National Institute, The National Center for the Business of Family Child Care

 
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