Estimated Taxes questions

G

gambler2075

Hi everyone,
Got a question about estimated taxes... last year I made well into the 6 figures trading, and this year I'm already up about 300K$ trading for the first quarter... just wondering who pays estimated taxes and what the penalties are for not paying them/when the deadline is...

Also, what happens if you make a ton of money, say, in the first half of the year, and lose if back the second half... do you get your estimated taxes back?

if anyone can help me out I would greatly appreciate it.

Thanks,
g
 
i pay ES.

i underpay during the first half of the year, because if you lose money, you can't then get it back from the government.

if you underpay you'll have to pay interest on the underpaid part.

congrats on your trading the first quarter, keep it up.

you're supposed to pay quarterly, i think by apr 15, jun 15, sep 15, dec 15? i forget exactly.
 
Caveat: I believe the followings are correct to my knowledge but you should check with your CPA.


Quote from gambler2075:


Got a question about estimated taxes... last year I made well into the 6 figures trading, and this year I'm already up about 300K$ trading for the first quarter... just wondering who pays estimated taxes and what the penalties are for not paying them/when the deadline is...
More...

You pay estimated tax by 4 installments:
Q1 2010: due Apr 15, 2010
Q2 2010: due Jun 15, 2010
Q3 2010: due Sep 15, 2010
Q4 2010: due Jan 18, 2011

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

You made $300K in Q1 (congratulations, BTW), you should estimate your Fed income tax liability based on that and come up with an estimated tax payment and send to IRS before Apr 15. (You are late if you haven't done so. But should do it ASAP.) Don't forget state tax too if you need to pay state income tax.



Penalty: For the amount owed... they have a table/formula to calculate your penalty. I forgot the exact percentage. Look it up.

http://www.irs.gov/taxtopics/tc306.html

If memory serves me correctly, it is something like 1% to 2% per month interest for every dollar of tax liability owed.



Quote from gambler2075:


Also, what happens if you make a ton of money, say, in the first half of the year, and lose if back the second half... do you get your estimated taxes back?
More...

You make your estimated tax payments for Q1 and Q2 2010. You don't need to make any estimated tax payment for Q3 and Q4. When you file for your tax 2010, that's where you provide the actual gain/loss for the year. You get your refund from the filing of your 1040.
 
Thanks for the reply.
What is the interest rate that you have to pay if you don't pay enough at the end of the year? I was wondering because so far I have been having a great year and if that continues, then it wouldn't be worth it for me to take the money and use it to pay taxes, when I could have just been using it to trade...

g
 
Ok, I think I am going to have to enlist the services of a CPA to handle this stuff... never had to do it before, but I think this is too much of a pain in the butt to deal with myself. Anyone have any ballpark figures how much that costs?

g
 
Quote from gambler2075:


What is the interest rate that you have to pay if you don't pay enough at the end of the year? I was wondering because so far I have been having a great year and if that continues, then it wouldn't be worth it for me to take the money and use it to pay taxes, when I could have just been using it to trade...
More...

Yes I know many traders are tempted for the same idea.

You figure that the worst case is probably 24%/year to pay on the interest. That if you can use the money to trade, you may get a lot higher on the return.

But there is a big risk behind that thought. It is assuming you can make good gain on the money you owe. It is no different than trading with other forms of borrowed money. If you lose, you end up owing a lot more than what you can walk away from without burden.

Personally I would stash that liability money away and not risk it.
 
Quote from gambler2075:

Thanks for the reply.
What is the interest rate that you have to pay if you don't pay enough at the end of the year? I was wondering because so far I have been having a great year and if that continues, then it wouldn't be worth it for me to take the money and use it to pay taxes, when I could have just been using it to trade...

g
More...

Don't forget the "Safe Harbor" rules that allow you to pay zero to very little in estimated payments if you fall under specific criteria.

Good luck.

AZD
 
Quote from gaj:


you're supposed to pay quarterly, i think by apr 15, jun 15, sep 15, dec 15? i forget exactly.
More...

IRS has an odd-ball schedule:

Apr 15, Jun 15, Sep 15 and Jan 15 (or Jan 18 in 2011 - weekend stuff).

For Q2 and Q3 you actually have to make an estimate before the quarters are closed out.
 
But I guess the argument about not paying estimated taxes, is that it is not like year to year taxes, right?

Let's say you made 100K in Q1, then didn't pay any estimated taxes, but lost 100K in Q4, and then were flat for the year... you wouldn't owe any taxes for that year, right?

Whereas, lets say you made 100K in 2009,
and traded with that between Jan 01 2010 --> April 14th, when you lost 100K$...

Now, you still owe money on those taxes for 2009, right? So you are screwed.

But in the estimated taxes situation, it is not like the quarters are separate from each other, in the way that YEARLY taxes are separate from each other, right? So in that case, if you screwed up in the second half of the year and ended flat, you wouldn't owe any taxes.

g
 
Quote from Bolimomo:

.

But there is a big risk behind that thought. It is assuming you can make good gain on the money you owe. It is no different than trading with other forms of borrowed money. If you lose, you end up owing a lot more than what you can walk away from without burden.

More...
nonsense. if you lose you wont owe any money so there will be no tax liability. the penalty is just simple interest and it is nowhere near 24%.
 
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