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Estimated Tax Question

Old 04-13-09, 11:48 AM
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Estimated Tax Question

I filed my tax return this past weekend and ended up owing $3k which wasn't fun. In checking out the e-file printout TurboTax tells me that I according to form 1040ES I need to make quarterly estimated tax payments of $778... the first of which is due Wednesday.

In 2007 I received a refund of $250. Last year my wife was working full time for the full year and I had some short term capital gains due to exercising stock options. My wife just quit her job and currently has no plans to go back to work immediately so we'll only have her income for 3 months of the year (assuming she doesn't go back to work).

Now I understand that if I end up owing another $3k this year I'm going to face penalties for underpayment and I need to make the quarterly payments. However I expect my 2009 income to be right in line with my 2007 income (particularly since the wife worked for 3 months in 2007 and I just took a 5% pay reduction). My question is, do I need to make the estimated payments, or will I be okay if I just ignore it, or even pay much less than the $778 I'm supposedly required to pay? I can't tell if it's just a suggestion to avoid penalties or the government is expecting me to cough that money up.
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Old 04-13-09, 01:42 PM
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Re: Estimated Tax Question

As long as your income is all W-2 (employee-related), then there's no need to worry, assuming you filled out your W-4 accurately.

If you have any income beyond your wages (capital gains, stock options), you'll need to pay estimated taxes
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Old 04-13-09, 01:46 PM
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Re: Estimated Tax Question

Like Doom said, if you're an employee with a firm you don't have to worry about anything at all. Each time your employer withheld federal tax for you on your paycheck, in effect you're making the estimated tax payment already. There is no need to make additional even if you expect to owe more, much less in your situation you're expecting to owe less.
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Old 04-13-09, 01:53 PM
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Re: Estimated Tax Question

Originally Posted by Fist of Doom View Post
As long as your income is all W-2 (employee-related), then there's no need to worry, assuming you filled out your W-4 accurately.

If you have any income beyond your wages (capital gains, stock options), you'll need to pay estimated taxes
Well since all my remaining stocks and options are way in the negative, I won't be selling any any time soon. All other income is W-2 related then.

Thanks for the info guys.
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Old 04-13-09, 02:10 PM
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Re: Estimated Tax Question

There are three tests as to whether you owe penalties and interest. Unfortunately, two of them are only sure after the fact. They compare the total of withholding and any ES to actual total tax line on 1040. You are OK if any of the three are met:
*Your tax balance is less than $1000
*Your tax balance is less than 10% of total tax (90% paid)
*Taxes paid via withholding and ES are at least equal to last year's total tax due

This last is called "safe harbor" and may be easier than detailed estimating (if the number is not too far out of line). Unfortunately for high income (over $150K AGI??) it is a higher amount, I think 110% of last year.

My experience with TurboTax is that it makes a crazed extrapolation of next year from last year. It is usually easier to make my own estimate on the government form that to figure out where TT went wrong. You are under NO obligation to pay what TT says, but you are obligation to make one of the milestones above.
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