Pre-pay taxes?

[gnome]

Quote from DisciplinedHedg:



Again, from form 2210, unless I'm misunderstanding things, you don't need to guesstimate your profits.

All that is required for estimated taxes is that you pay the smaller of the tax amounts of the current tax year OR previous year. ie. if you make $80,000 in 2002, but end up making $100,000 in 2003...the smaller is $80,000, the quarterly is $20,000. As long as you make quarterly payments of $20,000, even if you make $100,000 the following year, as far as the IRS is concerned you've paid your estimated taxes in full.

So if you have any doubts of what you will make next year, just pay what you're paying this year in quarterly payments for next year, and you'll be covered regardless of your taxes next year. If you owe more, you can pay at that time; if you paid too much, you can get it back.

If I'm wrong about this, I apologize. But, I believe this information is dated. Now, I believe, if your income exceeds last years' your estimated payments must be within 10% of the actual due. AND if your profits are 4th quarter loaded, you'll pay a penalty for not having made bigger estimates earlier... This from my CPA from '98 and '98 when I had monster 4th quarter gains and big increases over previous years... (not only from my CPA, I paid the penalties)

There was a transition period, that if you made more than the prior year, the "safe haven" was to make an estimate greater than you paid last year. I received a schedule form the IRS about this... it started about 105% of last years and increased over a few years to as much as 112%. Now, I think, it's "within 10% of actual due".

 

[gms]

The penalties are figured seperately for each installment's due date, so even if you make up the payment later, you still get hit. Take your total due and divide it by four and those are the payments. This has to be done on both your fed return and state.

The rule, I believe still is: You must have paid the smaller of:
1. 90% of the tax that will be due for the year or
2. 110% of the tax that was due in the previous filing year.

**You should also file Schedule AI since your income varies throughout the year, which enables you to lower or eliminate the amounts due for one or more required installments. That way, you can reduce the pain somewhat from the penalty hit.**

I'm not an accountant, but my personal experience has been that the IRS will always seek more money. You can reduce the hit, usually never get rid of it entirely... they always seem to want a bit more of something. Depending on what makes you feel better, look at it as giving a "tribute", same as the ancients did to their kings, or an offering to the gods to keep your household safe, or as the cost of doing business with the gov'ts money.