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Posted by Barry Margolin on March 28, 2008, 9:38 pm
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> In TurboTax was playing around with Form 2210 (Underpayment of Est. Tax)
> and I checked "Check if you had no tax liability for 2006", and the
> penalty disappeared. Does this make sense for me to do? If so, should
> I still attach Schedule AI (I can do it easily with TurboTax)?
This is the "safe harbor" rule: If your payments during the year
(withholdings + estimated taxes) are at least the previous year's
liability, there's no penalty for underpayment. This means that for the
year after you had no tax liability, you don't have to make any payments
until the return is due.
--
Barry Margolin, barmar@alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***
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Posted by removeps-groups@yahoo.com on March 29, 2008, 11:02 am
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> This is the "safe harbor" rule: If your payments during the year
> (withholdings + estimated taxes) are at least the previous year's
> liability, there's no penalty for underpayment. This means that for the
> year after you had no tax liability, you don't have to make any payments
> until the return is due.
Last sentence is correct, but not "If your payments during the year
(withholdings + estimated taxes) are at least the previous year's
liability, there's no penalty for underpayment". First, it includes
only your withholding. Second, if your AGI is above a limit, then the
rule is 110% of the previous year's liability. And the requirements
are more lenient for farmers and fisherman.
In this case, the previous year's liability was $0, so 100% or 110% of
that is still zero.
What are the sources of backup withholding? I called my brokerage and
asked if they could withhold taxes from my dividends and capital
gains, and they said no. So the only backup withholding I know of is
W2, and gambling withholding.
--
<< ------------------------------------------------------- >>
<< 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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Posted by Phil Marti on March 29, 2008, 11:24 am
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>> This is the "safe harbor" rule: If your payments during the year
>> (withholdings + estimated taxes) are at least the previous year's
>> liability, there's no penalty for underpayment. This means that for the
>> year after you had no tax liability, you don't have to make any payments
>> until the return is due.
>
> Last sentence is correct, but not "If your payments during the year
> (withholdings + estimated taxes) are at least the previous year's
> liability, there's no penalty for underpayment". First, it includes
> only your withholding.
Sorry, but you're wrong. Timely equal ES payments are included in
determining whether the prior-year safe harbor is met. Aside from the fact
that I've used this one many times, it's covered in Pub 505. Perhaps you're
thinking of the $1,000 balance due safe harbor, which considers only
withholding.
> What are the sources of backup withholding? I called my brokerage and
> asked if they could withhold taxes from my dividends and capital
> gains, and they said no. So the only backup withholding I know of is
> W2, and gambling withholding.
Stop filing and paying long enough and you'll learn that your brokerage can
withhold. They are not required, nor do they want, to voluntarily withhold.
There are basically two categories of backup withholding: "no TIN" and
"noncompliance." (Withholding from gambling winnings isn't necessarily
backup withholding. It's more like wage withholding, but with different
rules.)
If a covered payor doesn't get a TIN from the payee, they must backup
withhold. The onus here is on the payor.
Noncompliance backup withholding is initiated by the IRS. I don't recall
all the criteria and notice stream, but it basically boils down to the payee
isn't in full compliance (reporting and paying), IRS tells the payor to
backup withhold, and it's a somewhat complicated process to get the backup
withholding order revoked.
--
Phil Marti
Clarksburg, MD
--
<< ------------------------------------------------------- >>
<< 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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Posted by AES on March 29, 2008, 4:25 pm
Please log in for more thread options How does "safe harbor" relate to extensions on filing?
That is, suppose I have unexpected or unplanned income -- maybe lots of
it -- but I've fully satisfied the safe harbor requirements, whatever
they may be, based on my last year's return.
Am I then fully safe as regards this year's return, even if I request a
6 month extension?
Or am I only safe provided that I file this year's return by April 15 --
or at least pay the full amount needed to cover this year's return by
April 15?
--
<< ------------------------------------------------------- >>
<< 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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Posted by Barry Margolin on March 29, 2008, 5:21 pm
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> How does "safe harbor" relate to extensions on filing?
>
> That is, suppose I have unexpected or unplanned income -- maybe lots of
> it -- but I've fully satisfied the safe harbor requirements, whatever
> they may be, based on my last year's return.
>
> Am I then fully safe as regards this year's return, even if I request a
> 6 month extension?
>
> Or am I only safe provided that I file this year's return by April 15 --
> or at least pay the full amount needed to cover this year's return by
> April 15?
Safe harbor saves you from a penalty for being underwithheld. It has
nothing to do with the April 15 deadline for paying the rest of what you
owe. Filing an extension doesn't change this, either. You're always
required to pay by April 15, the extension just allows you to send the
paperwork (the tax return) later.
--
Barry Margolin, barmar@alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***
--
<< ------------------------------------------------------- >>
<< 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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