- 1). Use your federal tax return from the previous year as a starting point to estimate your gross income for the current year. You may use 90 percent of your gross income from the current year, or 100 percent of the income from the previous year (whichever is less). However, the IRS advises you to also take into account any major changes in your expected income for the upcoming year.
- 2). Fill out the worksheet for Form 1040 ES to figure your taxable income and estimated taxes. There are a number of credits (for example, for educational expenses) you can take. If you are not itemizing deductions, refer to Publication 505 to determine your standard deduction and withholding allowances. For 2011, the standard deduction is $5,800 if filing single or married filing separately, $8,500 if filing head of household or $11,600 if filing married filing jointly or qualifying widow(er). Your taxable income will be either your gross income minus deductions (if you itemize) or your gross income minus standard deduction and withholding allowances (non-itemized).
- 3). Refer to the tables and instructions for Form 1040 ES to compute your estimated income taxes. Do not use tax tables from your regular tax return. This is a sliding scale. If your filing status is single, you pay 10 percent of the first $8,500 plus 15 percent of the amount from $8,500 to $34,500, and so on (for 2011). For example, if your estimated income after deductions is $25,000, you would owe $850 on the first $8,500, plus 15 percent on the remaining $16,500 ($2,475) for a total of $3,325.
- 4). Calculate self-employment tax. Multiply your gross income (before taking any deductions) by 92.35 percent (0.9235) to get your taxable income for the self-employment tax. Then multiply that amount (up to the $106,800 Social Security tax cap for 2011) by 2.9 percent. Multiply this total by 10.4 percent.
- 5). Pay your estimated federal taxes. Your quarterly payment is the sum of your estimated income tax and self-employment tax, divided by 4. There are two methods of payment available. You can pay by check or money order using Estimated Tax Payment Vouchers. The vouchers and the mailing address are included with Form 1040 ES, which you can order from the IRS by calling 800-316-6541. The IRS recommends you use the online Electronic Federal Tax Payment System. You can enroll online or order a paper enrollment form by calling the number above.
- 6). Make sure you pay the quarterly payment on time to avoid penalties. The due dates are April 15, June 15, September 15 and January 15 of the next calendar year. Payments must be scheduled online or postmarked by those dates.
- 7). Amend your 1040 ES and payments if you find your income is much greater or less than you originally estimated. The instructions for doing this are included in the 1040 ES 1040 package. It's not unusual for a person to find they over or underestimated their taxes for the upcoming year, so the IRS allows you to make corrections as you go along. You must file an amended 1040 ES to do so, however.
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