estimated Fed taxes?

100% of your 2007 tax.

snipped-for-privacy@naol.com (Jeff) posted:

This is not universally answerable with a simple statement, other than that you should pay as close to the amount you will owe for "next year" (i.e., 2008) as possible.

The traditional "safe harbor" applies to taxes which are _withheld_ -- and that would be to have the amount _withheld_ that is equal to 100% of your previous year's total tax bill.

However, if you are paying only estimated taxes (rather than withholding), the issue is more complex -- as there are periodic payment benchmarks related to income realized within the various payment periods. The full story is covered in Pub 505 -- but it would not be unreasonable to suggest you will generally avoid penalties if your total estimated tax payments are within $1,000 of your 2008 total taxes due, and if your payments have been made in a timely manner throughout the year (i.e., by April 15, June 15, Sep 15 and Jan 15, 2009), and all four were roughly equal.

Again, I stress this is a simplification -- intended as a general guideline, only.

Bill

Bill: The "within $1,000 of" safe harbor is when you have withholding only, not estimates as this poster is doing. The normal equal and on time payments are 1/4 of last year's tax (110% of last year if last year's AGI was over $150,000), or 1/4 of 90% of this year's actual tax.

ed

Frankly I don't know if it is 90% or 100%, I have always found that confusing and paid 100% just to be sure; but don't forget that your withholding counts toward it. If you get W2 income figure that in.

Thank you all.

I am retired and therefore do not have withholding, just estimated payments.

Jeff

========================================= MODERATOR'S COMMENT: If you receive a form 1099-R each year from an IRA or 401k or a pension or annuity, you can send them a form W-4P to request they withhold federal income tax for you. If you receive social security benefits you can submit form W-4V to SSA.

I fill out the 2210 penalty form to tell me what I owe any given quarter. My investment income is irregular.

Jeff .: Are you aware of the special break you can give yourself as a retiree? Instead of paying installments don't do anything all year and then in December withdraw your RMD from your 401K or IRA and have the trustee withhold the amount of your last year's tax (or at least

90% of what you are certain will be your current year's tax). If you are under 70 this presumes you are willing to use an IRA distribution instead of paying your taxes with after tax dollars. Also, before doing this call your trustee and make sure they will withhold and how long it takes them because it must be withheld from a current year's distribution.

Actually any source of income that you can withhold from will work, even Social Security but you would be paying some each month instead of investing that to pay in December. I do this with T.Rowe Price verbally. I call them to distribute the amount of my RMD and withhold the amount I need and send me the remainder. Painless, convenient, no paperwork, no penalties.

ed

Well I'll be darned! You CAN teach an old dog new tricks.

Then you're saying that T Rowe in Bal'mer (my favorite as well) will withhold a set dollar amount instead of a predetermined percentage like

15,20,25...?

That's a REAL good idea, ed.

ChEAr$, Harlan Lunsford, EA n LA

The Schwab site allows Federal withholding from 10% to 100% on an IRA distribution. So if, for whatever reason, 10% of the RMD is too much, you can do this in two moves. Take 10X your tax burden out, then take the rest with no tax withheld.

As far as ed's "this presumes you are willing to use an IRA distribution", well, if you have an RMD, the math is no different, not like you can take out less money. If the RMD won't cover your taxes, that's another story. Joe

Great idea - I like it - get rid of estimated payments altogether.

Not only does this make the paperwork easier, I can keep (and earn interest) on my money until the last minute.

Does anyone see any downside to this idea?

With my Charles Schwab IRA, to make electronic transfers to my bank account I had to give them preset percentages for federal and state withholding, but I found out, if I request (online) that they cut a check and mail it to me (free of charge), that I can enter the percentage of withholding on the fly, just for that check.

Just remember, if you have more than 50% of the distribution withheld for taxes, you can't efile.

(snipped....)

After my previous reply one thing came to mind as to why this won't completely work.

If federal withholding is more than 50% of gross distribution, then electronic filing is not allowed and one would be relegated to filing the old fashioned way. And I'm an ardent supporter of efiling.

But of course it could be partially used with precise advance planning. And who better than a tax pro for this? (grin)

ChEAr$, Harlan Lunsford, EA n LA

The "willing to use" is because before age 70 an IRA withdrawal is voluntary and maybe he wants to keep the money in his IRA.. As for e- filing, UNLESS you are due a refund, WHY? So its cost 41 cents, or maybe a couple of $$$ to get a receipt, deduct that cost from the other savings!.

Consider that taxpayer has used this ploy to pay 90% of current year's *estimated* tax (or more) , or the amount of last year's tax), he OWES the IRS so what's the hurry to e-file? I have yet to e-file because we UNDERPAY the minimum acceptable amount and pay the other 10% or more next April.

ed

Filing and payment are independent events. You can efile early and know that your return is filed and pay your tax liability on April 15 (by check or electronic draft). You get the best of both worlds.

Ira Smilovitz

E-filing is separate and distinct from paying, and you can e-file in January but not pay until April 15th.

Arguments for efiling - other than saving postage and less paper -- include a postmark that holds up better than even a certified mail receipt, and not having to rely on seasonal temps who are data entry clerks getting everything right. Mistakes crop up far too frequently.

And far too often a paper return will arrive unsigned and treated as not filed.

Even those over 70 it's still a valid planning tool.

Well, in my case, my state mandates efile for all returns filed by my office, and that includes my own.

ChEar$, Harlan

Harlan: What do they do about returns that can't be e-filed? Glad I don't live there but then, maybe the climate or some other attributes make it worth while (the reverse of my option to withhold but you'r unable to e-file.

ed

No, I was not aware of that. I will explore it with my broker.

I am not yet 70.5 years old and therefore am not yet in the mandatory withdrawal stage of my IRA. But I do have income from other investments. I will probably make use of this when I start my withdrawals.

Jeff

You're quite right there, for this would be an exception and okay to paper file with the state. Hadna thought that far ahead. (grin

C$, H