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Subject Author Date
Estimated tax payment. PeterL 04-12-2008
Posted by Ernie Klein on April 15, 2008, 12:04 am
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 In article

> > One never knows for sure, that's why it is "estimated".
>
> Its only "estimated" because the 2008 tax brackets wont
> be set for another 6 months. Most likely they will be more generous
> than now due to inflation. Otherwise you can compute your
> necessary tax exactly according to 2007 tax laws.

Not really. For me, and maybe others, the largest unknown was the
amount of income I might receive in the coming year which might include
unexpected capital gains, a large amount of overtime pay, bonuses (which
are supposed to have extra withholding but still cause problems) and
other variable income. When that is coupled with the same variables in
my wife's pay, then the small change in tax brackets and rates were
almost lost in the noise when compared to the volatility of our income.

I still believe the safest course is to withhold and/or pay estimated
tax to the safe harbor and then not worry about it - either pay up taxes
due (interest free loan to me) or receive a refund (interest free loan
to the gov.) next year.

--
-Ernie-

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Posted by joeu2004 on April 12, 2008, 6:30 pm
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> Once again I find myself owing a significant amount to the IRS, mainly
> because I didn't pay estimate tax.  I have a regular income where
> taxes are withheld.  I also have significant but irregular capital
> gains and taxable interests.  I don't mind paying the penalty, which
> is insignificant.  But wifey don't want to.
>
> So for next year, how can I go about paying estimate tax, not knowing
> what my capital gains will likely be?

Since you have wage income, you might be able to avoid
making estimated tax payments simply by making
adjustments to your withholding.

I simply estimate my total tax liability, using all of the same
information that goes into a 1040; then I use the withholding
tables to determine the number of allowances to withhold the
right amount by the end of the year.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by joetaxpayer on April 12, 2008, 7:42 pm
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joeu2004 wrote:
> Since you have wage income, you might be able to avoid
> making estimated tax payments simply by making
> adjustments to your withholding.
>
> I simply estimate my total tax liability, using all of the same
> information that goes into a 1040; then I use the withholding
> tables to determine the number of allowances to withhold the
> right amount by the end of the year.

OP's issue was not knowing what his gains would be. So I see a few choices:
1) Pay the 'insignificant' penalty. If indeed it's that small, it may
not be worth the effort to follow my next choices. "gee, honey, I messed
up again, let's go shopping" should work for SWMBO.
2) Adjust withholdings to pay too much, e.g. plan to refund $2,000
instead of owing $2,000. Not recommended, but one way out.
3) Track gains and taxes through the year. Year to year changes are
minimal (the tax rates, and exemptions, I mean) so using 07 TurboTax
will at least narrow things down. As you see the tax due and penalty, a
quarterly payment can be made.

Joe

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by ed on April 13, 2008, 12:30 am
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> joeu2004 wrote:
> > Since you have wage income, you might be able to avoid
> > making estimated tax payments simply by making
> > adjustments to your withholding.
>
> > I simply estimate my total tax liability, using all of the same
> > information that goes into a 1040; then I use the withholding
> > tables to determine the number of allowances to withhold the
> > right amount by the end of the year.
>
> OP's issue was not knowing what his gains would be. So I see a few choices:
> 1) Pay the 'insignificant' penalty. If indeed it's that small, it may
> not be worth the effort to follow my next choices. "gee, honey, I messed
> up again, let's go shopping" should work for SWMBO.
> 2) Adjust withholdings to pay too much, e.g. plan to refund $2,000
> instead of owing $2,000. Not recommended, but one way out.
> 3) Track gains and taxes through the year. Year to year changes are
> minimal (the tax rates, and exemptions, I mean) so using 07 TurboTax
> will at least narrow things down. As you see the tax due and penalty, a
> quarterly payment can be made.
>
> Joe
Without estimating (wrong,probably) you can do it exactly with a
Quarterly Installment tax calculator which you can download from the
web. This works particularly well for you when your gains are
distributions from mutual funds at year end. It computes the exact
installment necessary for each quarter without overpaying just because
of a mid-year gain.

ed

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by joeu2004 on April 15, 2008, 2:02 am
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> joeu2004 wrote:
> > Since you have wage income, you might be able to avoid
> > making estimated tax payments simply by making
> > adjustments to your withholding.
> [....]
> OP's issue was not knowing what his gains would be.

I understood that. I think you missed my point. I said
"making adjustments" -- plural. That is, make periodic
adjustments, either as gains are realized or once or twice
during the year.

The advantage is: withholding is presumed to be evenly
distributed throughout the year, even if it is not. So you
know if you have covered your tax liability without risk of
penalty as long as you have withheld enough by the end
of the year.

If you try to make the same adjustments by making
uneven estimated tax payments, the annualization
computation is more complicated, and you risk a penalty
in one payment period or another, even if your payments
cover your total tax liability.

Of course, if you don't have sufficient income subject to
withholding, you have no choice but to make estimated
tax payments.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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