Tax question

[shiny]

Unlike many others, I don't get wortked up about paying taxes. I know what the tax rates are and (mostly) how I get taxed, and I cannot change it. Plan accordingly, write the checks, and don't spend a lot of time getting worked up over it. Oh yeah: and be thankful you get the chance to make that much.

BTW, if my withholdings for 2007 will be well in excess of 2006's tax, I don't think I have to pay quarterly, right?

Yea, these are high class problems!

If you pay 110% of what you paid in 2006 in your 2007 withholdings then you don't have to pay quarterly.

 

[brewer12345]

Yea, these are high class problems!

If you pay 110% of what you paid in 2006 in your 2007 withholdings then you don't have to pay quarterly.

Thanks. I'm still liable for interest on underpayments, right? Just no penalty if you withhold enough.

 

[Nords]

Thanks. I'm still liable for interest on underpayments, right? Just no penalty if you withhold enough.

At your level, if you pay at least 110% of your 2006 tax bill, then no penalties OR interest apply.

This isn't as credible as Retire@40's original legislation, IRS rulings, or private letters, but hey-- you're a trained professional and can probably handle the responsibility of figuring it out for yourself: http://www.irs.gov/pub/irs-pdf/p505.pdf, starting around page 21.

 

[Dawg52]

I always owe when I file my tax return. Never pay any interest.

 

[saluki9]

Thanks. I'm still liable for interest on underpayments, right? Just no penalty if you withhold enough.

No penalties or interest if you pay 110% of last years liability. The IRS doesn't really car whether this is from withholding or from estimates (as long as you don't wait for the 4th quarter to make the majority of payments) I got called out by the IRS because I argued that I didn't know what my bonus would be until the 4th quarter. They turned down my appeal and hit me with a penalty.

Now I don't try to get fancy and just give them their money on time.

 

[MikeK]

The bummer with the "losing itemization tax" and "AMT tax" is that it creates a 22% long-term capital gain tax. I've read articles about this and tested it with my tax returns during the past few years. I do pay 22% on long-term capital gains.

I try to take the perspective that we're paying these higher taxes we made significant incomes. It's a nice problem to have. The government hasn't figured out how to take more than 100% (yet ).

As my Canadian wife says, people in Canada would love to only be paying 45% tax above $200K

Mike

 

[mathjak107]

HMMMM I didnt find that with the amt. i paid 15% on the long term capital gains and all other income was subjected to the amt. i guess you can average it out and say your paying more overall because of the amt but i dont see it touching the 15% . im also refering to the point where income has phased out all deductions and your on a flat rate. i never had a situation where i got a partial deduction because we have always been over the limit.

 

[MikeK]

Here's a great article explaining the 22%.

http://www.fairmark.com/amt/ltcg.htm

It is basically an issue of the capital gain wiping out the AMT exemption.

I ran a few scenarios with my taxes and found it to be true. I'd add a $10,000 capital gain and my tax would go up by $2,200.

Of course, the AMT is so complicated that the mathematics are dependent on your original income and where you stand within the AMT exemption before the capital gain.

As a CA resident this is an extra frustration because I'm already paying 9.2% state taxes. This makes my short-term capital gains 31.2%.

Mike