Seriously, my last tax post (Re: Estimated tax payments)

[LondonBroil]

I just did my 2004 taxes declaring my net winnings as "other income" on line 21 of my 1040. This isn't a discussion about how I'm a horrible person because I didn't declare gross winnings and deduct my losses. Anyway, I ended up owing $1600 in taxes and because I owe over $1,000, I'm going to have to pay penalties as well. I don't feel like doing this again next year at this time (paying the penalty).

My question is to those who pay their taxes quarterly, seeing as how the first payment is due very soon (4/15). The tax booklet says that you must make 4 equal payments in April, June, September, and January. Now, my question is, how am I supposed to know exactly how much to pay each quarter seeing as how I have no idea how much I'm going to make in the months ahead? I coud run very well in the first quarter than go on a 3 month losing streak!

Also, why does it go April, June, September, January? Shouldn't it go April, July, October, January?

Anyone who does estimated quarterly taxes please respond as I do not have much time to complete this.

[MajorCP]

The general rule is that if you can reasonably estimate your income, then you should pay it in four substantially equal quarterly installments. Part of what the IRS considers "reasonable" is if your quartelry filings are based on what your income was last year. If it's a lot higher this year, you can still go a bit down the road of end-loading your estimated payments into fourth quarter, especially if you keep records showing that your income also followed this same trend.

I know that's how it works with a business and self-employment income.

Assuming that you also have W-2 earnings (or even if you don't, this part is for those of us who do), a better way to handle this is to increase your W-2 withholdings a LOT in fourth quarter, as the IRS doesn't regulate the timing of W-2 withholdings the same way they do with quarterly estimated filers.

[balkii]

your estimated tax payments for 2005 are supposed to be 1/4 of your 2004 tax liability.

if you paid 4000 in tax last year each quartly est. payment should be at least 1k, regardless of how much you've won or expect to win this year

[Homer]

Last year I did not keep detailed session records and ended up requesting a statement from each poker site with deposits/withdrawals and used that along with my Neteller transaction history to determine my net win for the year. I gave all of this information to an accountant. I am certainly going to owe more than $1000. Am I to assume that I'm going to have to pay a penalty (I guess I'll find out tomorrow when he calls me)? If so, how much will it be (what percentage)? This sucks.

-- Homer

[Brainwalter]

[ QUOTE ]
Last year I did not keep detailed session records and ended up requesting a statement from each poker site with deposits/withdrawals and used that along with my Neteller transaction history to determine my net win for the year. I gave all of this information to an accountant. I am certainly going to owe more than $1000. Am I to assume that I'm going to have to pay a penalty (I guess I'll find out tomorrow when he calls me)? If so, how much will it be (what percentage)? This sucks.

-- Homer

[/ QUOTE ]

I believe the penalty for not making estimated payments is 5% max.

The penalty is incurred when your estimated tax payments and W-2 withholdings do not total at least your previous year's tax liability.

(I'm no expert and probably wrong)

[J.R.]

here

[Homer]

[ QUOTE ]
[ QUOTE ]
Last year I did not keep detailed session records and ended up requesting a statement from each poker site with deposits/withdrawals and used that along with my Neteller transaction history to determine my net win for the year. I gave all of this information to an accountant. I am certainly going to owe more than $1000. Am I to assume that I'm going to have to pay a penalty (I guess I'll find out tomorrow when he calls me)? If so, how much will it be (what percentage)? This sucks.

-- Homer

[/ QUOTE ]

I believe the penalty for not making estimated payments is 5% max.

The penalty is incurred when your estimated tax payments and W-2 withholdings do not total at least your previous year's tax liability.

(I'm no expert and probably wrong)

[/ QUOTE ]

Thanks. Ugh, looks like I screwed myself out of about $500. I need to find a new hobby.

[LondonBroil]

[ QUOTE ]
here

[/ QUOTE ]

The stuff written here reads a lot like Publication 505 that the IRS lady on the phone told me to read. For some reason I have a hard time comprehending the language they use. For example...

[ QUOTE ]
To determine whether you need to make those payments, answer these questions.

1. Do you expect to owe less than $1,000 in taxes for 2004 after applying your federal income tax withholding to the total amount of taxes that you expect to owe? If so, you're safe -- you don't need to make estimated tax payments.
2. Do you expect your federal income tax withholding (or estimated taxes paid on time) to amount to at least 90% of the tax that you will owe on your 2004 return? If so, then you're in the clear and you don't need to make estimated tax payments.
3. Do you expect that your income tax withholding will be at least 100 percent of the tax that you paid on your 2003 return? Or, if your adjusted gross income (Form 1040, line 35) on your 2003 tax return was over $150,000 ($75,000 if you're married and file separately in 2004), do you expect that your income tax withholding will be at least 110% of the tax you owed on your 2003 return? If so, then you're not required to make estimated tax payments.


[/ QUOTE ]

Come again?


Anyway, I think I'm just going to send in a little over 25% of what I think I'll owe for the year every pay quarter. THe worst thing that happens would be I pay too much. If I end up overpaying I'll get that back when I file next year, right?

[Brainwalter]

Yes, if you overpay on estimated tax payments, you'll get it refunded next year.

[Brainwalter]

[ QUOTE ]
Thanks. Ugh, looks like I screwed myself out of about $500.

[/ QUOTE ]

Just for clarity, I meant 5% of the amount you underpaid by. So maybe that is 10k and you have a $500 penalty or maybe not.