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Estimated Tax Payments ó Explain

Old 04-17-2019, 08:48 AM
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Default Estimated Tax Payments ó Explain

Iím probably going to regret this because Iím sure this thread will devolve into a train wreck, but Iím wondering if someone can simply explain Estimated Tax Payments.
I know how Google works, Iíve searched and read a ton, but I still am having a hard time grasping what they are. Well, I guess I know what they are, but Iím more trying to figure out how they apply to me and why I have them this year.

Government employed, M-F job. No significant raises. The only things that happened in 2018 for me were that I got married and I sold some stocks to buy my jetdock.
We also filed jointly. No kids.

End of the day I was left with having to cut a nice check to the IRS and was given the payment slips to make the Estimated Payments throughout the year.

After talking with numerous friends who have varying degrees of similarities in their financial situations, many of them do NOT have to pay these payments, despite having sold stocks and/or being self employed.
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Old 04-17-2019, 08:52 AM
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I'm no expert, but pretty good at paying them...... My unqualified opinion, you didn't meet the threshold for the amount of taxes paid throughout the year and there fore have to now pay estimates. 110%?
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Old 04-17-2019, 08:57 AM
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If you're a wage earner (w-2), you have taxes withheld from your paycheck. If you have taxable income where there are no amounts withheld for taxes, you're supposed to pay those taxes quarterly, in the form of estimated taxes. So, if you sold stock or other property, and had a significant capital gain, you're supposed to estimate what amount of taxes would be due for that gain, and pay them in the quarter you received the gain. I am self employed, and my company (sub-s corporation) pays me a salary, for which I receive a w-2. I also get distributions as the sole shareholder of the company, for which I receive a K-1. There are no withholdings from the distributions. So I pay estimated taxes on my distributions throughout the year.

In summary, if you have taxable income from which there are no withholdings, you should calculate your estimated tax and pay it quarterly. They are literally "estimated" taxes, so I just "ball park" it and pay them. I get it pretty close every year.

Hope that clarifies it.
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Old 04-17-2019, 08:58 AM
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You can change your withholding instead of making the payments. Software will generate the payment vouchers if you owed over $1,000. If you edit your W-4, be sure to complete the page with the 2-wage earner worksheet to take into account your wife's earnings.
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Old 04-17-2019, 09:04 AM
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The IRS is getting ready to change the W-4 for 2019:
https://www.google.com/amp/s/amp.usa...amp/3401811002
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Old 04-17-2019, 09:05 AM
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I’ve sold stocks in the past and never had this issue, so perhaps this year i just happened to sell more than in the past and therefore I’m seeing these only now and not in those other years where I sold?
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Old 04-17-2019, 09:07 AM
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Originally Posted by Sprockets View Post
You can change your withholding instead of making the payments. Software will generate the payment vouchers if you owed over $1,000. If you edit your W-4, be sure to complete the page with the 2-wage earner worksheet to take into account your wife's earnings.
Iím thinking of going back to filing individually. She and I donít share accounts or anything.
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Old 04-17-2019, 09:22 AM
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Sent you a pm. These things are unique to each person.

Also, you probably don't want to file Married Filing Separate. It "usually" doesn't save taxes.
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Old 04-17-2019, 09:29 AM
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The short version is that you are supposed to keep your tax payments to the IRS roughly "up to date". If you get a giant chunk of money in January, and have no taxes withheld, you end up owning penalties and interest when you get around to doing your taxes the next year.

The IRS operates on the assumption that each year you will make more money than last year, and so if you have a year where you owed a lot in taxes, and have not adjusted your withholding, their assumption is that the same thing will happen next year, and that you are being "undertaxed", and therefore need to make estimated payments.

In your case, it sounds like this was a 1-off year income wise. If you are not currently anticipating selling a chunk of stock again in 2019 you should not need to make estimated payments. You got the slips sort of "by default", not because your taxes this year put you in some kind of actual penalty scenario.

It really wouldn't matter if you file joint or separate. From what you described, I would throw the estimated tax forms out and forget about it.

FWIW, I have gone through the same process several times in the past, and actually again this year. We owed what would be considered a "livable wage" worth of income in taxes, based on a large payout my wife got in 2018. That triggered the "estimated tax" forms this year, but since we are not currently expecting that to happen again, we are not going to be making any estimated payments to the IRS.
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Old 04-17-2019, 09:55 AM
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Originally Posted by dev View Post
The short version is that you are supposed to keep your tax payments to the IRS roughly "up to date". If you get a giant chunk of money in January, and have no taxes withheld, you end up owning penalties and interest when you get around to doing your taxes the next year.

The IRS operates on the assumption that each year you will make more money than last year, and so if you have a year where you owed a lot in taxes, and have not adjusted your withholding, their assumption is that the same thing will happen next year, and that you are being "undertaxed", and therefore need to make estimated payments.

In your case, it sounds like this was a 1-off year income wise. If you are not currently anticipating selling a chunk of stock again in 2019 you should not need to make estimated payments. You got the slips sort of "by default", not because your taxes this year put you in some kind of actual penalty scenario.

It really wouldn't matter if you file joint or separate. From what you described, I would throw the estimated tax forms out and forget about it.

FWIW, I have gone through the same process several times in the past, and actually again this year. We owed what would be considered a "livable wage" worth of income in taxes, based on a large payout my wife got in 2018. That triggered the "estimated tax" forms this year, but since we are not currently expecting that to happen again, we are not going to be making any estimated payments to the IRS.
best explanation yet. Thank you very much.

Correct. I do not plan on selling a chunk of stock in 2019, although it's not out of the question.

I already paid one of the Estimated Payments because it had a due date of April 15, same as my normal payment. So I could just stop from here on out and likely be ok?

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Old 04-17-2019, 10:09 AM
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Originally Posted by dev View Post
... From what you described, I would throw the estimated tax forms out and forget about it.
Yep.
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Old 04-17-2019, 10:16 AM
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I do have to pay estimated taxes because of non-W-2 income but I go over what I expect to earn each year with my CPA when the estimated tax worksheet is done. It does not have to be solely based on last year but if you end up not paying them and still owe a significant amount you will probably own penalties and interest. If you're not going to owe anything when you file next year then you should not be paying estimated taxes.
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Old 04-17-2019, 10:18 AM
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Originally Posted by coores14 View Post
best explanation yet. Thank you very much.

Correct. I do not plan on selling a chunk of stock in 2019, although it's not out of the question.

I already paid one of the Estimated Payments because it had a due date of April 15, same as my normal payment. So I could just stop from here on out and likely be ok?
Yep.
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Old 04-17-2019, 10:20 AM
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Originally Posted by coores14 View Post
Iíve sold stocks in the past and never had this issue, so perhaps this year i just happened to sell more than in the past and therefore Iím seeing these only now and not in those other years where I sold?
I don't know that there's some "threshold" amount that dictates whether you have to pay estimated taxes. However, if your withholdings are high enough that they basically cover whatever amount of 1099 or K-1 income you have, then you're fine. Most people have 1099 income for interest and dividends, and I suspect few people file estimated taxes for that. If you sell stock, and have a $2000 gain, I don't see any need to pay estimated taxes. If you sell stock and have a $20,000.00 gain, you probably should pay estimated taxes.

I'm not a CPA or tax expert, I'm just telling you from my own experience, and what I do (and have done for decades).
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Old 04-17-2019, 10:31 AM
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Originally Posted by coores14 View Post
Iíve sold stocks in the past and never had this issue, so perhaps this year i just happened to sell more than in the past and therefore Iím seeing these only now and not in those other years where I sold?
In short, the issue you had this year was likely because you didn't pay attention last year when the IRS said very loudly, "CHECK YOUR WITHHOLDING, YOU WILL BE TAKING HOME MORE IN YOUR PAYCHECK". Therefore, all things being equal, you paid less tax during 2018 from your paychecks than in prior years, and therefore OWE more (or get a smaller refund) when you filed. Again, this was all over the news, it was impossible to miss. Yet many ignored the message.

The best part is that after this was made public knowledge last year, and now this year when everyone is freaking out, most won't check their withholding again, and again will find themselves having an issue next April. I put an order in for popcorn for next tax season ...

There are rules, called Safe Harbor Rules, that tell you how much you must pay during the year to not have a penalty when you file next year.

In short:

During 2019, make sure you pay 100% of your total 2018 tax and you won't have a penalty. If your adjusted gross income for 2018 was more than $150,000, you must pay at least 110% of 2018's total tax.

OR

Pay at least 90% of your total 2019 taxes via withholding or estimated payments.

Sit down, look at your total 2018 taxes paid on your tax return, and then see how much you've paid from your paychecks today (and up to the date of any change that HR would have to make). Subtract this year's amount, then either pay the remainder via withholding or via estimated taxes, or both.

Also note - if you make uneven estimated tax payments, you may have to justify to the IRS why you don't have to pay a penalty. That justification is dividing your income and deductions into 4 times periods (not calendar quarters) on form 2210. It's a royal PITA, so my advice to most is to simply make 4 even payments via estimated tax payments as well as your paycheck withholding.
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Old 04-17-2019, 10:31 AM
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IR-2019-03, January 16, 2019

WASHINGTON ó The Internal Revenue Service announced today that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.

The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.



the interest rate for underpayment amount is 6 %...
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Old 04-17-2019, 10:32 AM
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Originally Posted by lps View Post
I don't know that there's some "threshold" amount that dictates whether you have to pay estimated taxes. However, if your withholdings are high enough that they basically cover whatever amount of 1099 or K-1 income you have, then you're fine. Most people have 1099 income for interest and dividends, and I suspect few people file estimated taxes for that. If you sell stock, and have a $2000 gain, I don't see any need to pay estimated taxes. If you sell stock and have a $20,000.00 gain, you probably should pay estimated taxes.

I'm not a CPA or tax expert, I'm just telling you from my own experience, and what I do (and have done for decades).
There is nothing magic about a $2,000 gain vs. a $20,000 gain. If a $2,000 gain generates enough tax liability to throw someone outside of the safe harbor rules, they're going to pay a penalty and interest. Given that for many the cap gains tax rate is 15%, this is only $300 in tax though.
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Old 04-17-2019, 10:33 AM
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I owe every year. I have never made an estimated payment and I have never been penalized for it. I think there is some formula that if you pay at least 80% of your taxes via withholding and your end of the year tax bill is not more than 20% of what your total withholding should be then you are fine. IE if your total tax bill is $10K and you owe $1,500 you are fine but if you owe more than $2,000 then you can be penalized. Its really only a problem, people with lots of money and complicated financial transactions or business owners need to worry about. Some dude cashing out some company stock should be fine.
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Old 04-17-2019, 10:36 AM
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Originally Posted by Lorne Greene View Post
I owe every year. I have never made an estimated payment and I have never been penalized for it. I think there is some formula that if you pay at least 80% of your taxes via withholding and your end of the year tax bill is not more than 20% of what your total withholding should be then you are fine. IE if your total tax bill is $10K and you owe $1,500 you are fine but if you owe more than $2,000 then you can be penalized. Its really only a problem, people with lots of money and complicated financial transactions or business owners need to worry about. Some dude cashing out some company stock should be fine.
Unfortunately, you've just posted fiction.
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Old 04-17-2019, 10:40 AM
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I'm w-2, had zero deductions on my W-4 as did my wife. We filed jointly. No kids. Still owed $6K at end of year. Now I have to save monthly for taxes by having more taken out each month.

Makes great sense.
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