How tax estimates are calculated for extension payments and what you can do to help with its accuracy.
Formations provides personal tax estimates to customers for whom we prepare and file their personal tax return (Form 1040). These estimates help you plan ahead and avoid surprises at tax time. Here's how we calculate them — and what you can do to help ensure they're accurate.
🧾 How We Calculate Tax Estimates
We use a combination of professional tax software, your business, and personal tax data, and, when needed, prior-year information:
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Tax Software
All data is processed through our professional tax software to ensure accuracy and compliance with the latest tax rules.
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Business Income (Form 1120S / Schedule K-1)
- If your S Corp return is complete, we use the Schedule K-1 to report your business income.
- If it's still in progress, we use the estimated income based on what’s available in your Formations account.
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Assumptions from Prior Year
If we’re missing documents, we may use prior-year info as a temporary placeholder.
Example: If your spouse had a W-2 last year, we’ll assume similar income this year unless you tell us otherwise.
📤 How You Can Help Ensure Accuracy
To get the most accurate estimate possible, we recommend:
- Upload all requested documents promptly (e.g. W-2s, 1099s, mortgage statements, investment income). You can find the list of open items in your account (link to OIL)
- Let us know about life changes, such as:
- Got married or divorced
- Bought or sold a home
- Had or adopted a child
- Started or closed a business
- Keep your Formations account up to date throughout the year with any new income sources or deductions. Once a quarter, we publish a check-in survey in your Formations account to help us stay on top of any life-changing events that have a tax implication. Make sure you complete the survey when it’s in your account.
💡 The more complete your documentation, the more accurate your estimate will be.
🕒 What You Should Know About Extensions
Formations automatically files a tax extension (Form 4868) for all personal tax customers. Here’s what that means:
- ✅ You’re protected from the failure-to-file penalty.
- ❌ It does not extend your payment deadline.
Taxes are still due by April 15.
If you owe taxes and don’t pay by the deadline, the IRS may charge interest and late payment penalties.
We use your tax estimate to help you make an optional payment by the deadline to reduce or avoid these penalties.
📆 What About Q1 Estimated Payments?
The first quarterly estimated tax payment (Q1) is due by April 15, 2025. Formations will calculate your Q1 estimate based on your annual tax liability, using a combination of:
- Your current year-to-date financials
- Historical tax data
- Information from your Formations account
This approach gives us a high-confidence estimate of what your Q1 payment should be.
✅ No Q1 payment required?
If you’re running payroll through Formations and we’re covering your personal tax liabilities via regular paycheck withholdings, you may not need to make a separate Q1 estimated payment.
We’ll let you know in your tax estimate email whether a Q1 payment is needed and, if so, how much to pay and where.
📧 Tax Estimate Email
Once a year, a week before the tax deadline (April 15), we send out tax estimates to customers whom we prepare and file their personal tax return (Form 1040). In this email we provide your federal and state (if applicable) extension payment estimate and Q1 payments.
The links in the email direct you to the IRS payment page and to a list of state tax websites where you can find your state’s payment page (https://learn.formationscorp.com/where-can-i-find-my-states-tax-website).
💡If you have not received this email and Formations is preparing your personal tax return, you either don’t need to make an extension payment or your return was already filed and processed.
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