Last year my son had $6,467 of income and paid $212 in tax. This year he will, unexpectedly, have income of $200,000. He did not make 1Q estimated tax payment. Can I avoid penalties next year by making a $250 estimated tax payment for 2Q? If not, what should I do? If I did nothing, would the penalty be on the tax on $200,000, or on the tax on $6,467, or something else. Thanks.
Same questions for NYS...
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Was the $212 his total tax liability for the year? or only the amount he had withheld? What did your son do to have an INCOME of $200,000 this year? Obviously, he probably will not be your dependent.
Why is this YOUR problem, and not his? If his tax liability was only $212 last year, then withholding of that amount (or more) would be all that is necessary to avoid underwithholding penalty.
Again with the YOU. If you have no withholding or estimated tax payments, the penalty would be on the amount that you are short of 100% of last year's tax liability. Maybe $20 to $25.
Absolutely no idea
I've personally had experience with "overlooked" periodic payments of Estd Tax in the past, and immediately upon realizing it, have sent in the coupon + payment. This never resulted in any reaction. My belief is that their "sniffers" are set for serious problems, and allow -- or at least accept -- minor mistakes. You should be alerted that the "Safe Harbor" provisions don't apply in the same manner for those who make estimated tax payments. If withholding were the payment procedure for your son, then $250 would exceed his last year's total tax obligation ... but with Estd Tax, there is an obligation to meet periodic due dates related to accrued obligations (See Form 2110). The same is possibly/probably true for NYS (but check it out). I would advise making payments that are substantially related to amounts expected to be due. As I recall, there's a worksheet with Form 2110, for predicting the penalty amounts at various payment levels, related to total income flow (at least there is in the TaxWise software). Any penalty will be assessed, based on the income for the tax year in question -- not some previous year. You must be proud of your son.
Bill
To avoid any penalty for underpayment he need only pay $53 each quarter. He's now late almost two months on the first quarter so his penalty will be .08 * 53 / 6 = 71 cents. If he is now on salary and has withholding, that will cover the $212 requirement. ed
His salary is pretty trivial, as are the withholdings. Essentially all of his income, both this year and last are from investments. Unless he is reading this, he doesn't know he has either the income or the investments! So, if I make a first quarter payment now he is covered, except for a trivial penalty? That is good news.
It's safest to have him increase his withholding to $234 in total for this year. Then he won't have any penalty. (I don't know if the 110% applies based on last year's income or this year's; if last year's, total withholding of $212 suffices.) Or, pay the estimated tax for the quarter in which the income is actually received. There won't be any penalty for not paying estimated tax in the first quarter when there wasn't any income then. Seth
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