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Warning
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Simple English definitions for legal terms
estimated tax
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A quick definition of estimated tax:
Estimated Tax: When the government charges people, businesses, or property to get money for public needs, it's called a tax. Sometimes, the government asks people to pay taxes before the year is over, and they have to guess how much they will owe. This is called estimated tax. Taxes can be paid in different ways, not just with money.
A more thorough explanation:
Definition: Estimated tax is a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. It is a tax that is paid in advance based on an estimate of the taxpayer's income for the year.
For example, if you are self-employed or have income that is not subject to withholding, you may need to pay estimated taxes throughout the year to avoid penalties and interest. The estimated tax is calculated based on your expected income and deductions for the year.
Another example is if you receive income from investments, such as interest, dividends, or capital gains, you may need to pay estimated taxes on that income.
The purpose of estimated tax is to ensure that taxpayers pay their fair share of taxes throughout the year, rather than waiting until the end of the year to pay a lump sum.