Question regarding Quarterly estimated taxes (yes, I do pay them)

[LondonBroil]

I was told this year that estimated tax payments have to be equal amounts. So back in April, I decided what I'd probably owe for the year, divided it by 4, and made my first payment.

Well, since I suck at poker, I must have run REALLY lucky this year and so far have made a little under twice what I thought I was going to.

Can I make my last estimated payment (due 1/15) larger than my other 3 or will I just have to pay penalties come 4/15? If I CAN make my last payment larger, couldn't I have just paid something small like $50 for the first 3 payments then $6000 for my final one?

[dogmeat]

Estimated means estimated. The IRS does not want you to pay $50 three times and the bulk of your taxes on the 4th payment. They want it split up evenly, otherwise you will owe interest and a possible penalty.

Dogmeat /images/graemlins/spade.gif

[ QUOTE ]
Estimated means estimated. The IRS does not want you to pay $50 three times and the bulk of your taxes on the 4th payment. They want it split up evenly, otherwise you will owe interest and a possible penalty.

[/ QUOTE ]

How do they catch you though? When I fill out my tax return, I just put in how much tax I've paid for the year. The IRS does not ask me when I paid the tax.

[Beavis68]

from what I understand, as long as you paid taxes on at least as much as you made last year, you are ok.

[KaneKungFu123]

schedule AI

[Matt24]

Yes, your estimates are based on the previous year. For example I went pro September of 04(I only played much for a couple months previous) so I only had 4 months of earnings pretty much in 04. I ran great my first 6 months so I was way past what I made in 04 and had made 2 estimated payments, but I talked to a few accountants and all agreed that I need not pay any more estimated taxes in 05 and wait til 06 to pay all of 05.

[Big TR]

Your estimates don't have to be equal, but typically, they are. For those with escalating income year over year, estimates are paid in using 110% of the prior year income tax liability. As long as you pay this amount, I believe you can avoid paying penalties for underpayment of your tax liability.

Go ahead and make a larger payment. This will help mitigate the penalties somewhat.

I suggest you read Pub. 505, Chapter 2 at irs.gov.

Did you have a Fed. tax liability for 2004? If not, then you don't pay estimated for 2005. If you did pay in 2004, you must pay estimated tax if you expect to owe over $1000 after withholding.

Now the amount of 2005 estimated taxes only have to be as much as your 2004 tax (unless you made over $150,000); OR 90% of what you will owe for 2005 if that is smaller. Let's say your 2004 tax was $2000. You think your tax for 2005 is over $6000 so 90% is $5400. You pay at least the $2000 as estimated to avoid penalty (in equal payments if you have a steady income and start early).

If you have already paid estimated to equal your 2004 tax, you are good. If you finally owe around $6,000 for 2005, then file on time and send the remaining approximate difference of $4,000. Send it sooner if you want, it is not required. And your estimated payments don't have to be equal.

[JPinAZ]

[ QUOTE ]
How do they catch you though? When I fill out my tax return, I just put in how much tax I've paid for the year. The IRS does not ask me when I paid the tax.

[/ QUOTE ]

Form 2210 is used for calculating any underpayment of estimated taxes. If you don't fill it out when preparing your return, the IRS will do it for you to see if you underpaid.

[CORed]

You don't owe penalty unless your tax your total estimated payments + withholding (if you have a "day job") for this year is less than your tax liability for last year. You will, of course have to make up the differenct when you file your tax return.