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Estimated Tax - what forms do I use?

I made about $20K last year, plus a substantial amount in SE and mutual fund dividends.

This year, I made $10K the 1st half of the year, then was supposed to have a ten-fold increase in salary for the last half of the year. That said, I did not make estimated tax payments on the SE and dividends, since I thought I would be able to use the safe harbor rule.

Well, unfortunately, things didn't turn out as planned, and I lost the high-paying job I was supposed to have during the 2nd half of the year. So I'm unemployed and making no salary. But I did have some SE and dividend income during the 1st half of the year, and will for the 2nd half of the year as well.

So my question is, assuming I end up unemployed for the rest of the year, I know I'll have a underpayment penalty. To reiterate, I have NOT paid estimated taxes for the 1st two quarters. What form do I need to fill out TODAY, to figure out the amount to pay NOW to catch up? I'm reading through Form 2210, and the AI schedule, but from what I read, it looks like those forms are supposed to be filled out next April 2011, when my 1040 is due. They seem to calculate what my penalty will be next April, but don't calculate what my estimated tax payouts should throughout this year.

Reply to
martin lynch
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I have

------------- Instead of being concerned about what form, the real question should be how much should I send to cover the first half of the year. You could fill out a 2009 form 1040 using the income you think you will make for 2010. It won't be exact, but will give you an idea. Then send in about half of that amount of tax immdiately, then send in another 25% by Sept 15 and a final payment by Jan 15, 2011.

Payments of estimated tax should be accompanied by Form 1040X

Reply to
Nick Dickson

Nick:             Send payment with form 1040ES, NOT 1040X. And don't estimate anything. Download a 2210 tax calculator which DOES proactively compute the payment to make each quarter using the same formulas the IRS uses at the end of the year. You must filll in your last year's tax and AGI. Then, for this year, your SE net after expenses, your W-2 salary, your dividends, all cumulative for each quarter. Also fill in youractual (not cumulative) WIthholding and instalment you did make for the same periods but notice you use withholding through April 15, IF you have any Itemizaed Deductions they are often helpful on an annualized basis even if you don't itemize on your final 1040. And don't forget any carryover losses up to $3,000 in the first and subsequent quarters. If you do this right, quarter by quarter, it willl give you the absolutely lowest installments required. to reduce your penalty next April.  

The next best deal is to pay 1/4 of last year's tax each quarter, but as you know, if you do that you'.l have a penaltyi for not paying the firsst and second installlment.    

ed          >>

Reply to
ed

Simple. Compute the 2210 to find the estimated tax amount which eliminates the penalty. The exact 2010 wont be known until the end of the year. But the 2009

2210 at the worst would cause you to overpay your taxes a bit. Comptee the 2210 both ways. The "equal quarters" (short) method is more favourable when there is more income earlier in the year than later. The "annualized income" (long) method for more late income.

You only send in the form if you use the AI method and send it in

2011. The IRS makes a default penalty calculation for the short method. In the meantime you just pay the estimated amount on 1040ES voucher or online. And print a copy for your records.
Reply to
rick++

Thanks ya'll for your advice. Okay, so regardless of which method I use to estimate taxes, I don't have to actually mail in my calculations? I just mail in the check and the 1040ES voucher, right?

Also, I should've noted that SE and profits from stock sale greatly increased compared to last year, which is why I'm also concerned. So it sounds like I should try to estimate THIS YEAR'S misc income, rather than base it off of LAST year's misc income, right?

Also, let's say I send my catch-up payment to the IRS today, and by good fortune, I do land a high paying job before the end of the year, that would ultimately place in the good hands of the Safe Harbor. In that case, should I just not pay anymore estimated taxes for the rest of the year?

Reply to
martin lynch

Right.

Yes.

If income tax withholding from this dream job is sufficient to meet the last-year's-tax safe harbor, yes.

Reply to
Bill Brown

text -

NO. If this were true, 1/4 of last year's tax would be less than 1/4 of an estimate of this year's tax indicating you should use the last year's tax "Safe harbor". I suggest you complete the form 2210 AI for the second quarter. That will determine which safe harbor to use and will calcullate the minimum installments you sholld have paid through June 15. Then calculaate the third quarter for your September payment.

Or you can download a 2210 AI iinstalment calculator from the web to do the calculations for you. Or use the 2210 AI calculator from last year's tax program you used. It should be close enough for your purposes

.ed.

Reply to
ed

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