|
Posted by jack on October 7, 2008, 12:16 am
Please log in for more thread options
As I understand it, there are no penalties if you pay estimated taxes or
have withholding equal to 110% of your income.
If you fail to do that, you have to pay 8% interest. But is the 8% interest
on what you would have had to pay to make safe harbor or your 2008 tax bill?
Lets say your 2007 income was $200,000. You have to pay $220,000 in
estimated taxes for 2008 (assuming no withholding) to make safe harbor; 4
quarterly payments of $55,000.
Lets say you don't bother, and your 2008 tax comes to $1,000,000.
Do you pay the 8% interest on $55,000 from the 4 dates the payments were
due; or do you pay the 8% interest on $250,000 from those dates?
On the otherhand, if your 2008 income is $40,000, is it on $55,000 or
$10,000?
I realize it is actually more complicated than this, but I am just looking
for the concept; is the penalty based on 2007 or 2008 taxes.
--
<< ------------------------------------------------------- >>
<< 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 Bill on October 7, 2008, 8:54 am
Please log in for more thread options
jack@yahoo.org (jack) posted:
>As I understand it, there are no penalties if
>you pay estimated taxes or have withholding
>equal to 110% of your income.
>If you fail to do that, you have to pay 8%
>interest. But is the 8% interest on what you
>would have had to pay to make safe harbor or
>your 2008 tax bill?
>Lets say your 2007 income was $200,000.
>You have to pay $220,000 in estimated taxes
>for 2008 (assuming no withholding) to make
>safe harbor; 4 quarterly payments of $55,000.
>Lets say you don't bother, and your 2008 tax
>comes to $1,000,000. Do you pay the 8%
>interest on $55,000 from the 4 dates the
>payments were due; or do you pay the 8%
>interest on $250,000 from those dates?
>On the otherhand, if your 2008 income is
>$40,000, is it on $55,000 or $10,000?
>I realize it is actually more complicated than
>this, but I am just looking for the concept; is
>the penalty based on 2007 or 2008 taxes.
Jack, it seems you've got the basis for estimated taxes mixed up with
Adjusted Gross Income.
Let's start with this: if you have withholding from your salary in
2008, you reach safe harbor if the total amount withheld is at least
100% of the total income _tax_ you paid in 2007.
If you do not have tax withheld (either because you receive no salary -
due to self employment, or income from investments), then you are
responsible for making estimated tax payments.
These should be based on your total anticipated income for 2008, and
should be paid in 4 periodic payments -- due April 15, June 15,
September 15 and January 15 of 2009.
But the payments, while based on your income, should not be equal to
your entire income. Rather, they should be calculated on the amount of
tax due from that income (starting at the 5% level, then 15%, and
escalating eventually to the 35% level -- not counting payments for
Social Security or Medicare, which are separately calculated on Form SE,
tied to Schedule C - or C-EZ).
I would suggest you visit www.irs.gov, where you can read online, the
sections of Pub 17 which deal with when Estimated Tax payments are
required -- and then, if you need to make such payments, check out Pub
505 for help in figuring methods of calculating your payments.
If you find payments are necessary, then download Form 1040-ES, which
includes instructions and a general guide to developing your estimated
income, and the tax which would then be required.
Bill
--
<< ------------------------------------------------------- >>
<< 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 jack on October 7, 2008, 10:06 am
Please log in for more thread options
> As I understand it, there are no penalties if you pay estimated taxes or
> have withholding equal to 110% of your income.
>
> If you fail to do that, you have to pay 8% interest. But is the 8%
> interest on what you would have had to pay to make safe harbor or your
> 2008 tax bill?
>
> Lets say your 2007 income was $200,000. You have to pay $220,000 in
> estimated taxes for 2008 (assuming no withholding) to make safe harbor; 4
> quarterly payments of $55,000.
> Lets say you don't bother, and your 2008 tax comes to $1,000,000.
> Do you pay the 8% interest on $55,000 from the 4 dates the payments were
> due; or do you pay the 8% interest on $250,000 from those dates?
>
> On the otherhand, if your 2008 income is $40,000, is it on $55,000 or
> $10,000?
>
> I realize it is actually more complicated than this, but I am just looking
> for the concept; is the penalty based on 2007 or 2008 taxes.
It should read "Lets say your 2007 income tax was $200,000".
Reading it over, my figures are rather high, but again, I am just looking
for the concept. Sorry.
--
<< ------------------------------------------------------- >>
<< 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 rick++ on October 7, 2008, 10:07 am
Please log in for more thread options
Fill out form 2110 to estimate penalties.
Its in most tax software packages.
The 2008 version should be coming out any week now.
There two ways to compute it (1) equal quarters (short & easy)
and (2) annualized (long & hard). #2 is better if you have
more income in the second half 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 ed on October 7, 2008, 11:51 am
Please log in for more thread options
> Fill out form 2110 to estimate penalties.
> Its in most tax software packages.
> The 2008 version should be coming out any week now.
>
> There two ways to compute it (1) equal quarters (short & easy)
> and (2) annualized (long & hard). #2 is better if you have
> more income in the second half of the year.
The question is "what amount is the penalty figured on". The answer
is "Simple interest at the current rate (6% right now) on the
difference between what you have actually paid and what you should
have paid in each installment until the date you paid it"
How you figure each installment and what is actually paid in each
installment is a long story solved by completing form 2210 and
possibly its Schedlue AI.
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. >>
<< ------------------------------------------------------- >>
|
| Similar Threads | Posted | | Estimated Taxes | June 18, 2007, 9:27 am |
| Estimated Taxes | June 19, 2007, 9:29 pm |
| Re: Estimated Taxes | June 24, 2007, 10:41 pm |
| Re: Estimated Taxes | June 26, 2007, 12:19 am |
| Re: Estimated Taxes | June 29, 2007, 6:07 pm |
| How much estimated tax to pay for 2008 | February 8, 2008, 2:22 pm |
| Estimated tax payment. | April 12, 2008, 4:59 pm |
| Q4 Estimated Taxes | April 14, 2008, 7:31 pm |
| estimated Fed taxes? | April 28, 2008, 2:16 pm |
| Estimated tax after a refund?! | April 17, 2006, 12:35 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap