Turbo Tax Gotcha: January Estimated Tax Payments

I assume you are talking about your fourth quarter estimate for 2006? That is pretty bad. I can understand, though, how the import process would only look at 2006 transactions. They probably should have that as an interview question to ask if you made a fourth quarter payment.

They do have it as an interview question. Users who get there may well notice the missing data. Or they might see that six of the eight boxes are filled out, and assume that all relevant data has been imported. Turbo Tax should emphasize the missing data.

I picked the "Find Deductions Myself" option, rather than plod through a bunch of questions most of which are irrelevant to me. I "knew" that that data was imported from Quicken, so didn't choose the "Estimated Taxes Paid" question.

(I do check pretty carefully though, since from long experience I mistrust both Quicken and Turbo Tax.)

Just checking here to ensure we're not making a misunderstanding about timing - A "4th quarter" payment made in January doesn't count for Federal purposes in calendar year 2006, does it? It does for my state, but the payments for Federal State purposes on Sch "A" are for those made in a

*calendar* year I believe. Of course, it still should be included for the state return as mentioned, so perhaps it is a problem if not included in the import...but did you check the State return to see if it shows up there?

But a fourth quarter federal payment made in January would apply to the 1040 as well. You are correct about the state regarding a schedule A deduction. It should show up on the state return as a current year estimated payment.

And next year, Turbo Tax should import it from Quicken as a deduction on the 2007 1040 - or maybe carry it forward from this year's TTax if you enter it.

The issue is getting TTax to apply my January 2007 federal estimated payment toward my 2006 federal tax liability, and the state payment toward my state tax.

Which brings up another interesting issue. If you get a state refund, TTax tries to tax it as federal income even if you were in Alt Min Tax the year you paid it. However, although TTax doesn't do the math for you to exclude it, it does catch the situation and flag it as an incomplete form. It's up to you to recompute the previous year's return without the deduction, which is easy enough if you have TTax. So kudos to TTax for catching this one. I believe that previously they did not flag it, just casually mentioned in the help that you needed to fill it in.

- Walt

Quick question... what about any estimated payments made in JANUARY 2006? Did THOSE get transferred?

I assume you mean did a state estimated tax payment for 2005, made in Jan. 2006, get imported to serve as a federal deduction for 2006?

Yes, but Turbo Tax shows its source as being from the Carryover Worksheet. Had I not used Turbo Tax for last year's return, I don't know if it would have imported it from Quicken or not.

Turbo Tax users should check the Tax Payments Worksheet to see that all estimated payments, state and federal, have been properly credited. Payments for prior years are down at the bottom.

But to be clear again, this is true only if made in the SAME calendar year, I believe. A 4th quarter payment made in January 2007 for t/y 2006 does NOT get reported in t/y 2006 Federal 1040 Sch A. It DOES count for the state t/y 2006 (at least for my state of New York).

The 4th quarter payment made in January 2006 for t/y 2005 gets reported on the 1040 for Federal t/y 2006.

(Some people make sure they make the 4th quarter payment in DECEMBER to avoid having to remember this!)

R.C. - right??

Estimated payments get reported in two places:

1) The state payments are reported as a deduction on federal Sch. A. State payments made in January 2007 are deducted against your 2007 federal taxes. (Turbo Tax handles this OK.(

2) As a credit against the tax you owe. In this case, the 4th quarter (federal and state) payments made in January 2007 for t/y 2006 get credited against your (federal and state) tax for 2006. (Turbo Tax does not import this properly from Quicken; you have to enter it through the interview or directly on the Tax Payments Schedule.)

What you say is true as regards item #1 - the state payment as a federal deduction.

What Michael says is true as regards #2 - the January federal payment applying as a credit against the previous year's federal tax due.

The only time you don't want to make your 4th quarter state payment in December is when you know you are in AMT as it won't give you any benefit.

Hi, Andrew.

I've stayed out of this thread, as you've noticed. But, since you asked...

But, but, but... I'm not sure what the question is.

Are we talking about the state income tax estimates, or the federal? And are we worried about Quicken's handling of the January estimate? Or TurboTax's? Or the IRS's? This January, or last January?

Remember that well over 99% of individual taxpayers are on the cash basis and calendar year for tax reporting. (The answers are different for accrual basis and fiscal year taxpayers, but there are SO few of them.) Also remember that every state has its own laws and that some - such as Texas, where I live now - do not have a state income tax at all. And there may be some states with income taxes - I'm not aware of any - that do not require estimated tax payments. MANY taxpayers must deal with multiple states for one or more years. With all that out of the way, there are some GENERAL rules, subject to many variations.

On their Form 1040, individuals can deduct state income taxes PAID DURING the calendar year. So their 2006 deduction would include income taxes paid to ALL states during the calendar year 2006, including such taxes:

1. Withheld from compensation, as reported by their employer on Form W-2 for the calendar year 2006.
2. Withheld from interest, dividends or other income, as reported on the appropriate forms.
3. Paid as estimated taxes DURING 2006, typically including the January

2006 payment, but not the January 2007 payment.

1. Paid for the January 2007 payment IF it is paid in 2006.
2. Paid in April 2006 for the balance of the 2005 tax liability.
3. Paid at any time in 2006 for any year, such as on an audit or amended return for the 2003 tax year.

Let's not get into the discussion of state income tax refunds. We hashed that out more than once in the past and those discussion should be in the archives of this newsgroup. (Also, I'm no longer qualified to discuss this subject because I've forgotten what I used to know about it, and because I never learned the rules that have changed since I moved to Texas and retired.)

Federal income tax payments are not deductible on the Federal return, of course, except as credits for taxes prepaid. These typically include the April, June and September 2006 payments, plus the January 2007 payment - but not the January 2006 prepayment, obviously. The January payments will be in the "wrong" years, of course, so far as Quicken and TurboTax are concerned. If TT imports only 2006 transactions, it will see the January 2006 prepayment for 2005, but not the January 2007 prepayment for 2006. We will need to make the appropriate adjustments.

As always, the taxpayer - not Intuit - is responsible to see that the proper amounts are shown on the return.

RC

The answer is simple. Intuit wants you to buy their estimated tax reminder and payment service.

Ah, good point. When the original statement was made "TTax imported my 2006 payments into the Tax Payments Worksheet. But it didn't import any payments I made in 2007.", I jumped and was talking about State Taxes and the fact that the January payment from THIS year could not be counted on Sch "A" for 2006 Federal Payments. And then it got complicated!

But I thank you for your post with all sorts of other details that I really need to sit and think about to digest.

OK - but it's so much fun!