Figuring tax liability

[twolfy]

Taxes have never been a strong suit for me. I now live on disability payment from my work ( its taxable income because I never had to pay into the plan) i also now receive Social Security Disability payments and my DW still works. I've received tax vouchers from both federal and state for me to make estimated payments. I have never done this before and confused as to how to determine what needs to be done. Just did my taxes for last year on Turbo Tax and the program suggested I make quarterly payments and i had a small penalty on my state return for under payment of taxes. Federal was fine as I had a refund but I would like to have it closer to Zero. My income is high enough that 85% of my SS is federally taxable. No state tax on SS. I have 25% taken out of my work disabilty payments. For the seven months last year that I received SS, no taxes were taken out. This was ignorance on my part. I have that corrected now and have started having 15% taken out. I realize that I need to better understand my yearly deductions and approx how much investment income I will have coming in from my taxable accounts. This income stream (work and SS disability income) is enough now that we shouldn't have to touch our pre tax money until we hit 65. My DW will be retiring early at the end of May. What is some of the best reading to learn how to figure out how to have the correct amounts either taken out of our current income streams or making quarterly payments. I've been googling and reading some but need something geared more for the real novice here. Hope I have been clear here. Really difficult sometimes to ask for help when you are not sure what or how to really ask.
Thanks for any suggestions.
Tom

 

[LOL!]

I think the problem is not how much you are having taken out of your payments, but it seems your spouse is not having enough taken out of her paychecks. I am assuming you file married-filing-jointly (MFJ).

If you have enough taken out of current income streams, then you will not have to file quarterly payments.

Here is how I would figure it:

1. Look at how much tax you owe for 2013. This is the total tax figured out by you and not how much you paid because you may have underpaid or overpaid. It's your total tax liability.

2. Divide that number by the number of checks or direct deposits that you get in a year. For example, say you total tax was $2,400 and you get 24 direct deposits in a year. That means that you need to have $100 ($2,400 / 24) taken out of each direct deposit this year.

3. It is really that simple.

 

[twolfy]

Thanks LOL. We are having some trouble with my DW's new payroll system. I'm looking at it online now and see that not enough fed and State taxes are being taken out because her 401k deduction is so high.
When you say look at my total tax due for 2013 , am I looking at a specific line item on both my fed and state 1040s ?

 

[target2019]

Line 55 on Federal form 1040 shows your federal tax. If you have other taxes, they get added to line 61 on the form 1040.

Wife needs to contact her payroll so that you can get a reading on how many deductions she is claiming. First step would be to set this to -0- so that he/she can pay their fare share .

With 401k deduction, the idea is that payroll tax is reduced now, and you pay later, when withdrawing. What they are computing in the payroll department could be incorrect, but you need facts.

Now that you are having 15% taken out of the SS payments, that may very well take care of what is due. If you multiply that number by 12, it will give you a very good idea of whether or not this will take care of what is due.

You will probably need to file quarterly for the state, though.

 

[braumeister]

A couple of good estimators are:

Dinkytown 1040 Tax Calculator

Turbotax Taxcaster

 

[target2019]

If you used TurboTax, I see there is a "Estimated Taxes and Form W-4 Worksheet" that may or may not have been opened for you. Look for that in your taxes, and it prefills many fields for you based on 2013 taxes, and will let you adjust items for 2014.

This is based on the downloaded TurboTax program. Similar may exist in the online version.

 

[twolfy]

Thanks for the replies. I will look into those tax calculators plus I will go back into Turbo Tax and look and see if that is available

 

[samclem]

Tom,
There are a lot of ways to forecast the amount of money that you should have withheld to meet your "current year" tax obligations. But, if you simply assure that you pay in advance during 2014 (via withholding or estimated tax payments) as much tax as you had to pay in 2013 (line 44 or 45 of your tax year 2013 Form 1040), then you won't owe any penalties to the IRS. This is what I do every year. If your taxable income goes up in 2014 you'll have to pay any additional taxes and maybe some interest, but they can't and won't charge you a penalty. There are some variations to this rule, so do your own research and consult a tax advisor if necessary.

I am not an accountant, tax expert, or even particularly competent, so this advise is worth what you paid for it.

 

[twolfy]

Thanks Samclem, that's good advice .

 

[imoldernu]

Didn't want to start a new thread on this, but thought someone might be interested in the pre-season "deal" from TaxAct. The Federal form is free, but to do the state form you have to buy the "pro" program for $19.99... which covers both and has some added features.
The deal is... if you buy before August 31st , you get 30% off, so the price is $13.99.

I've been using it since it started in 1995, when it was called Personal Tax Edge. Not trying to sell this, but $6 is$6 and you get to use the 2015 program the day the program is updated.
Since the basic Federal Tax program is free anyway, you might want to give it a try... to see the interface. I like it because previous years numbers are shown as you go along, and you can store previous year returns.

 

[braumeister]

Yuck. I tried TaxAct last year and hated it enough to delete it and go back to TurboTax.

 

[jebmke]

Unless you expect your tax liability to go down significantly I would just pay the safe harbor amounts and then true it up when you file.

 

[imoldernu]

Yuck. I tried TaxAct last year and hated it enough to delete it and go back to TurboTax.

Yeah... I'm too poor to know. Haven't owed any taxes since 1990... so I'm pretty happy with it. 15 minutes... done... Federal and State.
I'll stick with the gal who brung me...

 

[samclem]

Yeah... I'm too poor to know. Haven't owed any taxes since 1990... so I'm pretty happy with it. 15 minutes... done... Federal and State.
I'll stick with the gal who brung me...

I'm glad there are several programs and that we can choose. Some folks seem to like Tax Act, and the price is right. My experience was like braueister's--Tax Act's prompts/forms seemed little better than the IRS "instructions" and forms, but I find both TurboTax and "the-program-formerly-known-as-TaxCut" to be a lot of help.