Making estimated tax payments

I have a savings account to house tax money. I claim exempt on a lot of paychecks. Is it okay to owe money come tax time if you pay it in full? Is there a cap on how much you can owe on tax returns before you get any fees?

In theory, this sounds like a good idea for taxpayers because it allows them to hold onto the income taxes they owe until April 15th, when they file their return. This, in turn, would allow them to earn interest on those dollars before paying the IRS. Unfortunately, our income tax system is designed as a pay-as-you-go system. This means that taxpayers are required to pay tax on their income as it is earned. Most people who have taxes automatically withheld from their paychecks accomplish this requirement without having to make additional tax payments. However, if you do not have enough withheld or you earn a significant amount of income where taxes are not automatically withheld (e.g., income from investments, alimony, self employment income) you may need to make additional estimated tax payments to meet the requirements.

Estimated tax payments need to be made at least quarterly. There are specific due dates each quarter (April 15, June 15, September 15, and Jan 15). If you do not have enough withheld or paid in through estimated payments each quarter, you may still be assessed an underpayment penalty.

To avoid an underpayment penalty, the IRS requires that you pay 90 percent of your tax liability for the current year or 100 percent of your tax liability from the previous year through your withholdings or estimated tax payments. If your adjusted gross income is above $150,000 dollars, the IRS requires that you pay 90 percent of your tax liability for the current year or 110 percent of your tax liability from the previous year.

The two exceptions to this rule are (1) if your tax liability for the current year is less than $1,000 dollars (after credit for withheld taxes); or (2) if you are a US citizen or US resident who did not have a tax liability for the tax previous year (assuming the previous tax year comprised of 12 months).

While there isn’t a specific dollar amount on how much you can owe before an underpayment penalty applies, I would recommend that you calculate your estimated tax liability for the current year. This will serve you well in two ways. First, it will provide you with an estimate of how much you will owe versus how much you have already saved. Second, it will help you determine if you have underpaid your taxes to date and allow you to make adjustments to reduce or eliminate the penalty before the end of the tax year. The IRS provides a worksheet with instructions on how to calculate your estimated taxes (http://www.irs.gov/pub/irs-pdf/f1040es.pdf). If you need assistance with this calculation or with the settlement of any penalties, I would recommend speaking with a CPA or qualified tax professional.The IRS also provides various form of free taxpayer assistance. For more information visit the IRS' web site at http://www.irs.gov/newsroom/article/0,,id=165646,00.html