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What's the right way to deal with owing the IRS money...next year?

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What's the right way to deal with owing the IRS money...next year?

Old 06-13-2014, 07:54 AM
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Default What's the right way to deal with owing the IRS money...next year?

Due to reasons outside of my control I had a large tax miss last year and had to write the IRS a substantial check.

I will have the same situation this year. It's complicated.

For the sake of argument, let's pretend this is W2 income (it is) and my employer is only sending 20% to the IRS. At the end of the year, I owe 30%. In this case the "employer" will not allow me to change their default withholding rate, it is fixed at 20%.

My understanding is that since last year was the "first time" that I didn't trigger any penalties or need for quarterly payments etc.

What's the best way to deal with this in terms of minimizing the hassle to me? Can I send the IRS a one time catch up before the end of the year?

Last edited by Flot; 06-13-2014 at 08:15 AM.
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Old 06-13-2014, 07:55 AM
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Pay a quarterly estimate.
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Old 06-13-2014, 08:01 AM
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Originally Posted by Ronn Burgandy View Post
Pay a quarterly estimate.
This^

Why won't your employer withhold what you ask them to?
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Old 06-13-2014, 08:03 AM
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The least amount of hassle is to just stroke the check when you file. Keeping your money for as long as you can is a nice little bonus.

But make damn sure you're not required to pay quarterlies first.
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Old 06-13-2014, 08:12 AM
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Originally Posted by Shag View Post
Why won't your employer withhold what you ask them to?
It's complicated. I'm working on it, but not getting anywhere fast.

I'd prefer to avoid the hassle of quarterly payments for a few reasons. The income in question (while w2) comes in spurts so it's essentially impossible for me to estimate the total for the year, today.

For the sake of argument:

Let's pretend that I just got a $20k bonus from my company today, but they only witheld $1000 in taxes. Obviously I have a tax problem. I may or may not get another 20k bonus this year, so I have no idea what my total tax liability will be. What's the least painful way for me to get the IRS the remaining $5k that I owe them? Or is this exactly what a quarterly payment is for, I should just send them a check for $4k today with a 1040ES form?
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Old 06-13-2014, 08:17 AM
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My wife was inside sales for a while and she had the opposite problem. If she sold a large order and got a nice bonus, they taxed it like that's what she was making every payday. So, on a good year they withheld way too much. She tried to get them to fix it but in her case, they were slaves to their in-house payroll software.
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Old 06-13-2014, 08:18 AM
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If you get a 20k bonus and the only hold 1k of it then just send them a check for 5k to bring your holdings up to the 30% mark. You may get a refund instead of owing. If you don't like the idea of a tax free loan to the fed then save the 5k and write them a check when you file.
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Old 06-13-2014, 08:21 AM
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Ask your CPA what you need to pay when you file to remain in "safe harbor". Make the payment when you file or at least as much as you can afford and then quarterlies....it'll minimize the penalty.
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Old 06-13-2014, 08:22 AM
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Grab the $, leave the country, forget the IRS.
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Old 06-13-2014, 08:23 AM
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The IRS will probably require you to file an estimated return for the following year.
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Old 06-13-2014, 08:24 AM
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Estimates have due dates throughout the year and can have penalties applied for late payment. Withholding is equally applied throughout the year to the tax liability due.

Give your employer a W4 with a dollar amount to withhold for the remaining pay periods that adds up to what you want withheld. Don't worry about the exemption calculations.

Give the employer a new W4 on 1/1/15 if desired to reduce taxes withheld.
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Old 06-13-2014, 08:26 AM
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Originally Posted by Ronn Burgandy View Post
Pay a quarterly estimate.
This is the way to go. If you pay what you paid last year (plus some % I think 10) there is no penalty, Have your employer take out nothing. If in the last estimated Q you think you will make less than last year make the appropriate downward adjustment. Else you may have to pay more but you got to keep the money until you pay the tax bill.

It is always better to pay the IRS without a penalty than to get a refund.
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Old 06-13-2014, 11:03 AM
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Originally Posted by Ronn Burgandy View Post
Pay a quarterly estimate.
ya the tax man is the only person that you can pay for 30-40 yrs on time and then suddenly it's cash in advance for the following year
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Old 06-13-2014, 11:19 AM
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go to the IRS electronic payment site (EFTPS) and make the payment you think you need to.
No forms, no nothing.
The site is self explanatory.
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Old 06-13-2014, 01:05 PM
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If you think your liability will = or exceed prior year you can make safe payments based on the prior year. You can also pay based upon actual wages. Google individual income tax payments.

It is not always better to pay ahead of time and get a refund. In fact, in this rate environment it never is unless you have your money earning nothing. I owed a substantial amount at year end, paid a penalty, and ended up significantly ahead as I earned over 18% during the year and the irs rate is something like 3%.

My clients like to be paid in. Psychological I guess.
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Old 06-13-2014, 03:31 PM
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Originally Posted by BACKTOTHESEA View Post
If you think your liability will = or exceed prior year you can make safe payments based on the prior year. You can also pay based upon actual wages. Google individual income tax payments.

It is not always better to pay ahead of time and get a refund. In fact, in this rate environment it never is unless you have your money earning nothing. I owed a substantial amount at year end, paid a penalty, and ended up significantly ahead as I earned over 18% during the year and the irs rate is something like 3%.

My clients like to be paid in. Psychological I guess.
This is what I do but you have to be diligent about putting your money to WORK and a bank account paying .005 aint it.If that's not for you see an accountant. If your interest is piqued see a trusted stock broker.
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Old 06-13-2014, 03:52 PM
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I take it those % were indeed "pretend" for illustration's sake? Either that or congratulations dawg your net income after deductions was almost $900k ! Assuming marreid filing jointly. $850k if single. You definitely need a new accountant they should have supplied those extimated quarterly 1040ES tax slips to you with your return.
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Old 06-13-2014, 04:03 PM
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Originally Posted by GWcpa View Post
Estimates have due dates throughout the year and can have penalties applied for late payment. Withholding is equally applied throughout the year to the tax liability due.

Give your employer a W4 with a dollar amount to withhold for the remaining pay periods that adds up to what you want withheld. Don't worry about the exemption calculations.

Give the employer a new W4 on 1/1/15 if desired to reduce taxes withheld.
This is what I was going to say - if you can get the employer to withhold a large amount even just once near the end of the year, the rule is it can count as if you paid it all through the year. I did this once early on when my wife was first self employed and we didn't yet understand estimated taxes very well.

If you pay a Q4 estimate, that's not going to change the fact that you didn't pay in Q1-3 so late fees are likely.
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Old 06-13-2014, 07:31 PM
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The Eftps sight works well. Unfortunately this stuff isn't really dyi. (IMO). I'm very blessed to have a good and accessible accountant/tax guy. I'd look for one. Their cost comes out of what they save you.
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Old 06-14-2014, 01:47 AM
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Originally Posted by Flot View Post

For the sake of argument:

Let's pretend that I just got a $20k bonus from my company today, but they only witheld $1000 in taxes. Obviously I have a tax problem. I may or may not get another 20k bonus this year, so I have no idea what my total tax liability will be. What's the least painful way for me to get the IRS the remaining $5k that I owe them? Or is this exactly what a quarterly payment is for, I should just send them a check for $4k today with a 1040ES form?
The least painful way (and correct way), if being done through payroll, is to talk to the person responsible for payroll, BEFORE that payroll is processed. It should be as simple as designating that specific bonus check as such - a one time/unique bonus check - and the payroll person can do a "one time" change the fed withholding to, for example purposes -your upper rate of 28% on the amount subject to federal income tax. (State income tax withhold can/should also be treated the same way.) You do not need to complete a new form w-4; email from you to stating "treat this check as a bonus check" should be sufficient.

On a third party system - ie if the paying company uses ADP - it is as simple as checking a box if processed in-house or making a phone call to the processor if that's how p/r is handled.

Common situation. (Sounds to me like the person processing the payroll doesn't understand payroll processing or isn't aware/not paying attention that bonus checks are being included in standard payrolls.)

Avoid the nuisance/lots of work of falling under the "I need to do quarterly estimates" at all costs. The situation you described above is far from "exactly what a quarterly payment is for".

As mentioned above, 4th qtr "catch-ups" are done, rather often. But they can be problematic, especially if the company's p/r gets audited by any regulatory body/taxing authority, (sometimes years after the checks are cut.)

Last edited by chrisjb; 06-14-2014 at 02:13 AM.
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