What is a potential consequence of not making estimated tax payments?

Not making estimated tax payments can result in possible penalties for underpayment of taxes. The Internal Revenue Service (IRS) requires that certain taxpayers, such as corporations and individuals with income not subject to withholding, make estimated tax payments to cover their expected tax liability for the year. If these payments are not made by the deadlines set forth by the IRS, taxpayers may incur penalties.

These penalizations arise because the IRS expects taxpayers to pay taxes on their income as it is earned throughout the year, rather than simply at the end of the tax year. Failure to make these payments can lead to a calculation of the underpayment penalty, which is generally based on the amount that should have been paid during each quarter versus what actually was paid.

This understanding is crucial for taxpayers to effectively manage their tax obligations, avoiding unnecessary financial burdens associated with non-compliance regarding estimated tax payments.