How do you file est. income tax payments when you don’t know what your income/loss will be from investments
Posted by admin on 23 Mar 2008 6:43 pm. Filed under United States.
Joanne V asked:
We will have income from IRA and Social Security and know now what those amounts will be. We have investments that are currently losing money, but who knows what the year-end will look like. We will also be able to itemize due to mortgage interest, property taxes.
I have filled out the Est Tax Worksheet and we wouldn’t owe any taxes because of Itemizing. So, do we still have to file est.?
We will have income from IRA and Social Security and know now what those amounts will be. We have investments that are currently losing money, but who knows what the year-end will look like. We will also be able to itemize due to mortgage interest, property taxes.
I have filled out the Est Tax Worksheet and we wouldn’t owe any taxes because of Itemizing. So, do we still have to file est.?
On March 26th, 2008 at 5:31 pm
You can adjust your estimated tax payments quarterly as the year progresses so that you’re only paying what’s required for income earned that quarter. Each quarter you’ll know what you should pay.
The four payments are due April 15th, June 15th, September 15, of the tax year and January 15, of the following year. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.
=====================
It would be nice if there were a straight “yes” or “no” answer. But, with taxes, it’s never that easy.
Rule #1: You must pay estimated tax for 2008 if both of the following apply.
- You expect to owe at least $1,000 in tax for 2008, after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2008 tax return, or
b. 100% of the tax shown on your 2007 tax return. Your 2007 tax return must cover all 12 months.
So, if the tax estimation worksheet shows that:
- you’re going to owe less than $1K then, you probably don’t have to pay estimated taxes.
- you’ll be paying at least 90% of your 2008 tax liability then, you probably don’t have to pay estimated taxes.
- you’ll be paying at least what you paid last year then, you probably don’t have to pay estimated taxes.
Rules #2: I keep writing “probably” because of another rule that states that “If you do not pay enough by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.”
So, if you have income that fluctuates wildly throughout the year, it’s possible that if you only look at the full year then, your withholding would look OK. But, if you look at your withholding quarter-by-quarter then your withholding might be too small for one or more quarters.
That’s why, if you have multiple income sources that causes your income to fluctuate significantly, then you should at least consider quarterly estimated payments. On a quarterly basis, simply do the calculation and see if your income received and taxes paid matches up.
On March 29th, 2008 at 4:40 pm
Changes in value of investments don’t affect your taxes unless and until you sell them. If you sell them, you can calculate your gain or loss.
The quarterly payments don’t all have to be equal. If your income is larger in one quarter, your estimated payments can be also.
On April 1st, 2008 at 11:02 am
Estimated taxes are paid in four installments through-out the year. You make the “best guess” based on the information you do have. If at anytime during the year an investment situation changes, you then adjust your next estimated tax payment to cover any discrepancy. As long as you don’t owe over $1000 dollars at the end of the year (2008) there will be no penalties for underpayment of estimated tax.
On April 1st, 2008 at 2:02 pm
Check out they have all tax answers there.