Estimated Taxes: A Friendly Guide for US Citizens Abroad

If you’re living overseas, juggling time zones, foreign currency and U.S. tax obligations can feel like a never-ending adventure. Let’s talk about one piece of the puzzle: estimated taxes. Yes, it sounds dry, but stick with me—it’s more important than you think.

What Are Estimated Taxes, and Do You Need to Pay Them?

Estimated taxes are a way of staying ahead of your annual tax bill (and avoiding penalties) by making quarterly payments throughout the year. Think of it as a little financial nudge to keep your tax obligations on track.

You might need to send money if:

• You expect to owe $1,000 or more in federal income taxes.
• Your withholding covers less than 90% of this year’s tax liability or 100% of last year’s.
• This amount is bumped up to 110% for those who earned more than $150,000, or $75,000 for those using the married filing separately status.

Who usually falls into this category?

• Freelancers, small business owners, or independent contractors (if you’re the boss, the IRS assumes you’re in charge of paying your taxes).
• Anyone receiving untaxed income like rental earnings, investments, or even profits from selling a home (if the home doesn’t qualify for exclusions).
• High-income taxpayers
• Taxpayers with significant one-time income
• Taxpayers with multiple jobs
• Individuals with reduced withholdings

If you’re nodding along nervously, don’t worry—you’re not alone, and we’ve got your back.

How to Calculate and Pay Estimated Taxes

Calculating payments might feel like solving a riddle, but it’s simpler than it seems. You may find it helpful to follow along with the 1040-ES.

Here’s a quick breakdown of what to do:

1. Project your total income for the year, including self-employment, investments, and other sources.
2. Subtract any deductions (hello business and standard deductions!)
3. Apply the appropriate tax rates to calculate your federal tax liability.
4. Add any additional taxes (like self-employment tax, explained below).
5. Subtract credits and withholdings to see what’s left.
6. Divide by four and voila – that’s your quarterly payment.

Pro Tip: self-employment calculation:

1. Multiply projected (or known) net profit by 92.35% (.9235).
2. If the amount is less than $160,200, multiply that by 15.3% (.153)
3. If the amount is more, than multiply that by 2.9% (.029) AND add $16,684.80

How to Pay

Pay online via the Electronic Federal Tax Payment System.

Use your credit card or bank account through the IRS’s payment portal.

Mail a check or money order with Form 1040-ES. This option is the most likely to be intercepted by an outsider, especially from abroad.

Become a client of BNC Tax & Accounting and have us setup on auto payments

Deadlines You Don’t Want to Miss

Mark your calendar for these dates:

• April 15 of the year you made the income.
• June 15 of the year you made the income.
• September 15 of the year you made the income.
• January 15 of the following year.

If the date falls on a weekend or holiday, payments are due the next business day.

What Happens If You Don’t Pay?

Let’s keep it real: skipping payments can land you with IRS penalties. U.S. taxes are a pay-as-you-go system, so the IRS expects you to stay on top of your tax obligations throughout the year.

Can You Avoid Estimated Taxes?

You might be off the hook if:

• You didn’t owe last year (know that you still may owe this year).
• Your total withholdings and credits this year cover your liability.
• You’re not self-employed or earning untaxed income.

But if quarterly payments are in your future, don’t fret—planning ahead is key.

Need Help? We’re Here for You

Planning doesn’t have to be overwhelming, even when you’re navigating them from across the globe. Whether you’re self-employed, juggling freelance gigs, or just trying to make sense of quarterly payments, BNC Tax & Accounting B.V. is here to guide you.

From answering your questions to handling the nitty-gritty, our team of tax professionals is just a click away. Let’s make estimated taxes a breeze so you can focus on the things that really matter—like exploring your new country or finally learning that local language!

Ready to take control of your taxes?

Get personalized advice and expert support from BNC Tax & Accounting B.V. today. Click for an initial consultation