Archive for the ‘Estimated Taxes’ Category

4/6/09 – Estimated Taxes for Individuals & “What If I Owe More Than I Can Pay?”

by P. Lewis Robinson
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Apr
7

Estimated Taxes for Individuals
& “What If I Owe More Than I Can Pay?”

Estimated Taxes for Individuals
Question:   How do I know if I have to file quarterly individual estimated tax payments?
Answer:   If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.
You must make estimated tax payments for the current tax year if both of the following apply:
  • You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
  • You expect your withholding and credits to be less than the smaller of:
    • 90% of the tax to be shown on your current year’s tax return, or
    • 100% of the tax shown on your prior year’s tax return.  (Your prior year tax return must cover all 12 months.)

 

There are special rules for:
  • Certain taxpayers with higher adjusted gross income
  • Individulas who own small businesses
  • Farmers and commercial fishermen
  • Aliens
  • Estates and Trusts
What If I Owe More Than I Can Pay? 
If you’ve been hit by a surprise tax bill, don’t panic. Resist the urge to stick your head in the sand and hope the IRS will just go away. It won’t, and avoiding the problem will only make it worse. To minimize the damage, file your return and send as much money as possible. Expect the IRS to send you a bill for the balance due and to impose interest and penalties on the unpaid amount. By sending your paperwork, you’ll avoid steep penalties imposed for the failure to file a timely return, which the IRS really frowns upon.
  

Even if you don’t have enough money to pay, returns should be filed to avoid further penalties for failure to file. The IRS will assist in finding a solution to the problem.
The IRS has streamlined its policies to offer alternative account resolutions if a taxpayer cannot pay in full with the return:

  • The IRS will help to set up an installment agreementwhen the situation warrants. Installment payments allow taxpayers to pay the tax debt over time.
  • The IRS will consider whether an offer in compromise is an appropriate solution.
What If I Don’t File Voluntarily?
The IRS is taking enforcement steps for those who repeatedly choose not to comply with the law. IRS employees will prepare returns when taxpayers do not file. The returns prepared by the IRS might not give credit for deductions and exemptions a taxpayer may be entitled to receive. Bills will be sent to those taxpayers for the tax due, plus penalties and interest.
People who repeatedly don’t comply with the law are subject to additional enforcement measures.
 
See next week’s email for the kind of interest and penalties that you can be charged with.
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3/2/09 – Reduced Estimated Tax Burden in 2009 for Individuals With Small Businesses

by P. Lewis Robinson
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Mar
2

To the extent that tax isn’t collected through withholding, taxpayers generally are required to make quarterly estimated payments of tax, in an amount determined by the required annual payment. The required annual payment is the lesser of 90% of the tax shown on the return or 100% of the tax shown on the return for the prior tax year. However, under Code Sec. 6654(d)(1)(C) , the prior-year percentage is 110% if adjusted gross income (AGI) for the preceding year exceeded $150,000). An underpayment results if the required payment exceeds the amount (if any) of the installment paid on or before the due date of the installment.  

The period of the underpayment runs from the due date of the installment to the earlier of (1) the 15th day of the fourth month following the close of the tax year or (2) the date on which each portion of the underpayment is made. If a taxpayer fails to pay the required estimated tax payments under the rules, a penalty applies, determined by applying the underpayment interest rate to the amount of the underpayment for the period of the underpayment. The penalty for failure to pay estimated tax is the equivalent of interest, which is based on the time value of money.  
Taxpayers are not liable for a penalty for the failure to pay estimated tax in certain circumstances (e.g., for U.S. persons who did not have a tax liability the preceding year; if the tax shown on the return for the tax year (or, if no return is filed, the tax), reduced by withholding, is less than $1,000; or the taxpayer is a recently retired or disabled person who satisfies the reasonable cause exception).  
New law. Effective on Feb. 17, 2009, the Recovery Act provides that notwithstanding Code Sec. 6654(d)(1)(C) , for any tax year beginning in 2009, in computing the amount of the required annual installments of estimated income tax of any qualified individual, “required annual payment” means the lesser of (1) 90% of the tax shown on the return for the tax year, or (2) 90% of the tax shown on the return of the individual for the preceding tax year. ( Code Sec. 6654(d)(1)(D) , as amended by Act Sec. 1212; Committee Report)  
A qualified individual means any individual if the AGI on the tax return for the preceding tax year is less than $500,000 ($250,000 if married filing separately) and the individual certifies that at least 50% of the gross income shown on the return for the preceding tax year was income from a small trade or business. For estates and trusts, AGI is determined under Code Sec. 67(e) . A small trade or business is one that employed no more than 500 persons, on average, during the calendar year ending in or with the preceding tax year. ( Code Sec. 6654(d)(1)(D) )    © 2009 Thomson Reuters/RIA. All rights reserved 
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12/10/07 – AMT & Payment of State Est. Taxes before 12/31

by P. Lewis Robinson
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Dec
9

Unless Congress acts promptly, the AMT is expected to hit as many as 23 million taxpayers at an average cost of $2,000.00 on their 2007 tax returns. For the 2006 tax year, nearly four million people were subject to the alternative minimum tax, including half of all taxpayers with incomes $200,000.00 to $1 million.

The Treasury has said that because lawmakers are waiting until the last minute to make significant changes in the AMT regulations, the IRS may not be able to process early tax returns, which taxpayers typically file if they’re expecting large refunds. What that means is that even if the AMT has absolutely no impact on your taxes, you might end up having to wait on your refund.

What to do
If there’s a chance that you owe AMT, you should think about its potential effects now. The most likely reason you’ll have to pay AMT is if you have certain types of deductions that don’t get counted for AMT purposes, such as real estate and state income taxes.

In general, it often pays to pay those taxes early in order to pull a potential tax deduction into the current year. But if you’re stuck paying AMT, it actually makes sense to wait, since you won’t be able to claim that deduction by paying early.

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