Last year was the first year I had to make quarterly payments (in addition to my withholding). I ended up underpaying by about $3400 for 2005. TurboTax is increasing my quarterly payments by almost $2000 each ($8000 total). Does anyone know why it didn't just increase them by the amount of last years underpayment?
Thanks.
There are a few ways TT makes the quarterly estimate. In all likelihood, what it did is use your estimated withholding and subtracted that from your
2005 taxes, then divide by 4 for quarterly payments. This is the easiest payment estimate to make; there are others you can look at.
Hi, Tom.
There's no way that we can guess what your next year's tax might be. There are SO MANY variables! First, of course, is the amountS of your income. Yes, that's a capital S because there are multiple amountS of income involved. How much income do you have that IS subject to withholding? How much do you have that is NOT? Of that not-subject income, how much is self-employment income and thus subject to the self-employment tax? And, of course, your expected deductions will affect the amount of your taxes, too, both income tax and SE tax.
I've been away from the subject for over 10 years and I'm sure a lot of the estimated tax rules have changed. In the olden days, there were many exceptions to the requirement that at least 90% of the tax (both income and SE tax) be prepaid - and that the quarterly estimates be adequate, as well as the annual total. ONE of the exceptions that we relied on most often was that there would be no penalty if the next year's estimate was at least as much as the prior year's tax. But remember, that means having as much as last year's tax paid in, including both withholding and estimated payments. In other words, even if next year's tax is exactly the same as this year's, your estimated tax payments would need to be more if your withholding is expected to be less.
TurboTax doesn't just make up the numbers. It gets them by calculating from the information YOU fed in. What did YOU tell TurboTax about YOUR expectations for next year? About your expected salary, your expected self-employment income, your expected deductions...?
RC
I did not give Turbo Tax any changes to my expected income for next year. I saw where I was allowed to do that, but I did not make any changes. It was only using the income and tax information from last year. And yes, my total withholding plus estimated will be more than last year. For some reason Turbo Tax wants me to send in about $4,000 more in taxes than last year (when you include the underpayment - for the same expected income). Maybe it is taking AMT into account. I already have to pay over $6,000 in AMT. Do the AMT rules get worse every year (for the same amount of income)? FYI, I only use the standard deduction but have lots of dividend and tax exempt income.
Thanks.
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