Estimated tax and credits question

Feb 06, 2007 3 Replies
M

I had a question about paying estimated taxes. Here is my situation, basically, I expect to make an extra $5000-10,000 this year in self employment income, on top of my regular salaried income from my job. I'd rather not have to bother filing estimated taxes. My understanding of estimated taxes and the safe harbour provision is that if I can cover 90% of my taxes through my salary, I should be fine and not have to pay estimated taxes (or a penalty for not paying them). I will have a deduction in 2007 of roughly $16,000-17,000 for my mortgage interest. That is my biggest deduction. So, is the following scenario safe? I'll use rounded numbers to make things easy. Income: $50,000 (normal taxes withheld) Self employment income: $10,000 Total income: $60,000 Deduction: $15,000 (house interest)



So given this scenario, as long as my extra income doesn't go above my deductions, I should be fine, right? Taking into account that I'll pay the extra self employment taxes too, so I can't quite make a one for one match between my deductions and my extra income. Make sense?


-- Mike



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B

I really don't know what "normal taxes withheld" means However, you can adjust your withholding by claiming fewer or more exemptions When you have self employment income you also need to account for the self employment taxes The safe harbor for avoiding a penalty for underpayment of estimated tax is the lesser of 90% of current year, or

100/110% of the previous year - that depends on your agi amount ... and don't forget about the state tax on your income

___________________________________

-----> real address on hobokeni or hobokenx

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E

NO. The mortgage interest is after a 7 1/2% of AGI deductible and then must be more than your Standard Deduction (which you don't say ) to be worth while. The better "safe Harbor" is that your withholding be as much as your prior year's taxes. That waives any penalty and you can pay the rest in April with your return. If your withholding in 2006 was less than last year's tax the penalty is only about 5 1/4% on the deficiency, but if you make up that difference before April 15 the penalty is reduced by .022% per day ( that's 8% annually simple interest ). ed

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M

Thanks to all who have replied, both via email and here. All told, I've decided to consult a local CPA. :)

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