Estimated Tax Question

H

Hitman

Just did my tax over the weekend, being single and almost no itemized deduction whatsoever it was a breeze, thanks to the K1 form as last year I had to enter 400 something Datek transactions, not fun.

Anyway, I have just a few quick questions. I did everything with Turbo Tax for the Web.

Since I suffered some serious damage in 2000 before I turned pro, and carried a deficit with me even after I turned pro, my overall reported income for 2001 was just 51K, versus 74K - payout which turned out to be close to 67K (I had a 85% payout earlier last year which happened to be my best months).

As of right now, I am responsible for a federal tax bill of around 9K, a state/city tax around 4.3K, or approximately, 25% of my overall income. Not that I want to give Uncle Sam any more than neccessary, but doesn't that sound a little low? (I double checked and it was entered as short term capital gains under K1)

I had a job for 55K a year before and I remember I had approximate $2800 a month take home, or paid approximately 38.7% of my gross to taxes, I just want to make sure I am not missing something here.

Then there is the estimated tax penalty which I have to pay approximate $140 to the federal, $80 to the state, now excuse my lack of knowledge here, but that sounds awfully low for a penalty. For the 13K or so I owe them, I think I can at least break even from a savings account via interest. Then again I know last year was my first profitable year, and I wonder if the penalty will be a lot more damaging this year if I don't pay it.

Last but not least, if I do plan out for estimated taxes, how much should I pay? I am up close to 16K YTD, I had a very slow start in January and I have been picking up the pace lately, but I know summer will probably be tough, I am currently thinking 55K but there is no telling whether I will breakout or breakdown from here, do you always overestimate or underestimate?
 
to avoid penalty on estimated you must have paid 100% of last years tax bill or 90% of this years tax bill.so next year your penalty would be more if you made money because its based off the prior years tax bill.
even so i dont recommend traders pay estimated taxes for the following reasons.
1.a good profatable trader should be able to make more with the money than the penalty is.
2.if you lose money this year you wont owe estimated anyhow.
3.if your year starts out great and you are making money and you pay a couple quarters estimated taxes and then boom, it happens.you have a major drawdown and two things happen.either you wont owe estimated for the year and you have to wait a year for the refund or even worse.you need the money you paid in estimated taxes to keep trading and there is no way to get the money back until you file next years taxes and get a refund and your out of business.
 
Hitman,

Since you are a prop trader. Who provide you health benefits?
Worldco or yourself.

I am planning to switch from 3 years part-time trading to full-time trading. Currently my software job pay for the benefit.

If you pay out of you own pocket, how much per month for medical/dental insurance.

thanks
 
Vhehn:

How painful is the penalty? I trade for a prop firm so capital access is not really an issue.

Crazy:

Out of our own pocket but at a discount rate, you get what you pay for as our firm provides a lot of choices. Anywhere from $25 - $250 a month depend on what you choose.
 
Originally posted by Carl J
Do traders pay social security tax? If they do how is the amount figured?
More...

Quoted from the IRS:

Self-employment tax. Gains and losses from selling securities as part of a trading business are not subject to self-employment tax. This is true whether the election is made or not.
More...

Read all the other stuff you probably want to know about trader status straight from the IRS at:

http://www.irs.gov/formspubs/display/0,,i1=50&genericId=12278,00.html
 
First off, good job making money Hitman, and yet I wonder about your tax numbers....seem kinda low.

The note about SS tax is wrong (the part about buying/selling securities) for prop traders....we simply give our traders a K-1 as "distribution of partnership income" ...and we made the election to exempt the Self Employment tax. Be sure WorldCo did the same.

As far as your previous losses are concerned, you may be subject to a limited amount of carryforward....you better check with your CPA.
 
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