EIT Reminder~Final Payment

[mickeyd]

For those of us that file a form 1040-ES for estimated income tax, our final 2008 contribution to the coffers of your Uncle Sam is due on Jan. 15, 2009.

 

[Ronstar]

Thanks a lot for the reminder!

 

[haha]

For those of us that file a form 1040-ES for estimated income tax, our final 2008 contribution to the coffers of your Uncle Sam is due on Jan. 15, 2009.

I realized enough losses in 2008 that I can skip my final payment. Much of my tax owed was realized CG, so the losses are netted against the prior gains. That is a help as I don't have to keep cash aside to pay this, or to pay tax in April as it is covered.

Ha

 

[ziggy29]

Speaking of reminders.... if you're subject to RMDs and you have an "automatic RMD service" such as the one Vanguard offers, and if you would rather not take it for 2009...remember to turn off the automatic distributions for the year, and leave a reminder to yourself to turn it on again in January 2010...

 

[Goonie]

For those of us that file a form 1040-ES for estimated income tax, our final 2008 contribution to the coffers of your Uncle Sam is due on Jan. 15, 2009.

I drove my Mom to the P.O. this morning so she could mail 'Uncle' his quarterly paycheck.

 

[Nords]

For those of us that file a form 1040-ES for estimated income tax, our final 2008 contribution to the coffers of your Uncle Sam is due on Jan. 15, 2009.

I made three contributions earlier this year, but then the market's realized capital losses more than made up for skipping the fourth one... now I want the first three back!

 

[tightasadrum]

I wish I had a clue whether to pay #4 or not. I've got too many financial issues + and - to know for sure. I suppose I'll pay something just to be sure after a back of the envelope estimate.

Thanks for the reminder though.

 

[Ronstar]

Nords, Tight, - I thought taxpayers had to pay either 100 or 110% of the previous years tax regardless of current conditions. I'm going to check with my tax guy, but is there some kind of an exemption from the 100 or 110% of previous year's tax rule?

 

[headingout]

I don't believe you'd be penalized as long as your payments cover the current year's taxes. The 100-110% rule is if your taxes go up and you didn't pay enough. (But check with the tax guy, who can certainly explain it better than me.)

Like many others I'm thinking of skipping the 4th payment, but need to run some estimates first, and even then this year was so unique that I'm not sure I trust the results until I have all my statements and can run the real numbers.

 

[deepc]

If you want to avoid penalty, you'll have to pay up front via withholding, credits, and estimated taxes: at least 90 pct of your 08 tax liability, or 100 pct of your 07 tax. If you anticipate your taxes will be less than last year and you've already had withheld or estimated tax payments of 100 pct of that tax, you shouldn't pay the last installment.

Estimated Taxes

 

[skyline]

My apologies for the thread-jack, but I was wondering:

For those of you who make EIT payments - when you've underpaid, what was the penalty? I ask because I am hoping to enter the ranks of FIRE this year, and my experience at least during these accumulation years is that the penalty for underpayment rarely works out to be more than a combined annualized rate of 5% (fed + state, CA). This includes years where I've owed over $30K in underpaid taxes.

My thinking is that I'm not going to bother making EIT payments and will just pay the penalty when I file - but wasn't sure if I was just somehow lucking out on the low penalty %s?

 

[samclem]

when you've underpaid, what was the penalty?

According tot he information posted here, the penalty rate changes occasionally. The rate for the first quarter of 2009 will be 5%. I don't know if there are any other costs. The penalty is figured on Form 2210, and it is apparently a PITA to compute.
I just estimate my income each year as being identical to last year's income--it's easy and I will never have to pay a penalty.

 

[kaneohe]

Nords, Tight, - I thought taxpayers had to pay either 100 or 110% of the previous years tax regardless of current conditions. I'm going to check with my tax guy, but is there some kind of an exemption from the 100 or 110% of previous year's tax rule?

This is a safe harbor condition under which you won't get into trouble ....but it is not the only such condition. See deepc's response for another such condition (2 posts below yours) .....the 90% of THIS year's tax is another but more difficult to estimate early in the year.

 

[skyline]

According tot he information posted here, the penalty rate changes occasionally. The rate for the first quarter of 2009 will be 5%. I don't know if there are any other costs. The penalty is figured on Form 2210, and it is apparently a PITA to compute.
I just estimate my income each year as being identical to last year's income--it's easy and I will never have to pay a penalty.

Thanks Samclem, that table explains why I've never figured out how it's computed (I usually just let TurboTax figure it out, and the percentage is low enough that I don't bother worrying about it...)

 

[Nords]

What DeepC said about the estimated taxes vs actual liabilities. I've been keeping the spreadsheet for quite a few years now and I'm pretty close.

We were paying estimated taxes based on our 2008 projected tax liability, not on 2007 (which was even worse). We rebalanced in Feb and took a huge cap gain on Berkshire Hathaway. Then we tax-loss-harvested in November and wiped out all the cap gains plus more. In between we made a couple estimated-tax payments that we would've had to make under the annualized method anyway, but which we should get refunded after filing.

And just because life wasn't complicated enough, this year I also made a couple of local investments that should give us a few years of state tax credits. But I didn't actually start doing that until October, after I'd made a couple estimated-tax payments, etc...

The penalty is figured on Form 2210, and it is apparently a PITA to compute.

The only way to do this honker is with tax software. Manually (as in estimating taxes via 2210 AI) makes my head hurt almost as much as using 8606 for Roth IRA conversions.

 

[Ronstar]

Thanks for the explanation guys. Its clear to me now to the point that I can explain the situation to the tax guy. With my 2008 business income at approx 40% of 2007 income, it doesn't make sense to pay 100% of the 2007 tax for 2008.