There is still time to avoid a penalty for estimated fourth-quarter taxes, but the clock is ticking

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There’s still time to avoid a fine if you don’t pay enough taxes in 2022, but the clock is ticking.

If you are self-employed or receive income from gig economy work, investments and more, the TBEN for your estimated fourth quarter 2022 tax payment is January 17.

According to financial experts, your payment could lower your 2022 tax bill and avoid additional penalties and interest.

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“This is where you can make yourself whole at the end of the year,” says certified financial planner John Chichester Jr., founder and CEO of Phoenix-based Chichester Financial Group.

If you don’t withhold taxes from your income, you typically have to pay four times a year. Otherwise, you may owe interest and a late payment penalty of 0.5% of your outstanding balance per month or part of a month, subject to a maximum of 25%.

The IRS says Direct Pay is the “fastest and easiest” way to make payments. You can also make payments through your online IRS account, which provides access to payment history, or digitally through the Electronic Federal Tax Payment System. You can view other options through the IRS payment website.

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This season, the IRS will begin accepting individual tax returns on January 23. The federal tax TBEN is April 18 for most filers.

Know the “safe haven” to avoid federal tax penalties

One important thing to know: Chichester said there’s a “safe harbor” to avoid underpayment penalties for your annual federal taxes.

You will not owe any federal penalties if during 2022 and through the January 17 TBEN, you paid the lesser of 90% of your 2022 taxes or 100% of your 2021 bill if your adjusted gross income is $150,000 is or less. (Choose the latter strategy and you’ll need 110% of your 2021 bill if you make more than $150,000.)

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However, the safe harbor is no guarantee that you won’t owe more federal taxes before 2022, Chichester said. He urges clients to set aside at least 20% of income to cover federal taxes, plus a smaller percentage for state taxes, depending on where they live.

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