Do I really have to pay Est. Tax in 08?

MB_ · Joined: 25 Aug 2007 Posts: 40

I just ran TT -- final run-- no errors and printed out my return.
The printout included vouchers to pay 2008 estimated taxes.

Am I required to do it:

For 2007 I owe about $2300 in taxes, mostly due to a large capital gain
realized in late 2007.
In 2007 I withheld $11,220.
In 2006 my total tax was $9720.

Questions:

1) Given the above information, can I assume there is no penalty for
underwithholding of tax?

2) Assuming I withhold enough to cover taxes in 2008, am I still required to
pay quarterly estimated taxes?

3) If the answer to #2 is YES and I don't pay estimated taxes (but withhold
enough to cover my tax liability) am I liable for additional penalties
and/or interest?

4) If I have to pay estimated taxes, should I just lower my withholding to
compensate for the estimated taxes (in this case, since I expect to owe less
taxes in 2008 than 2007, I might be lowering it to close to zero -- am I
even allowed to do that?)

Mel

Archived from group: misc>taxes

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"MB_" wrote in message $bc1.8@newsfe06.lga...
>I just ran TT -- final run-- no errors and printed out my return.
> The printout included vouchers to pay 2008 estimated taxes.
>
> Am I required to do it:

Nope.

> For 2007 I owe about $2300 in taxes, mostly due to a large capital gain
> realized in late 2007.
> In 2007 I withheld $11,220.
> In 2006 my total tax was $9720.
>
> Questions:
>
> 1) Given the above information, can I assume there is no penalty for
> underwithholding of tax?

There shouldn't be.

> 2) Assuming I withhold enough to cover taxes in 2008, am I still required
> to pay quarterly estimated taxes?

Nope. Even if you underwithhold, you're not required to make estimated tax
payments. A penalty might apply though, if you don't meet at least one of
the safe-harbor rules.

> 3) If the answer to #2 is YES and I don't pay estimated taxes (but
> withhold enough to cover my tax liability) am I liable for additional
> penalties and/or interest?

Yes or no. If the taxes are paid through withholding, the IRS assumes it
was paid evenly through the year. If you make one estimated payment in
December for the whole year, and *over pay* they could still hit you with a
penalty because you didn't pay evenly through the year.

> 4) If I have to pay estimated taxes, should I just lower my withholding to
> compensate for the estimated taxes (in this case, since I expect to owe
> less taxes in 2008 than 2007, I might be lowering it to close to zero --
> am I even allowed to do that?)

Just be sure you don't owe tax for 2008 and you'll be good.

--
Paul A. Thomas, CPA
Athens, Georgia

ed · Joined: 25 Aug 2007 Posts: 95

On Feb 27, 12:04 pm, "Paul Thomas, CPA"
wrote:
> "MB_" wrote in message
>
> $bc1.8@newsfe06.lga...
>
> >I just ran TT -- final run-- no errors and printed out my return.
> > The printout included vouchers to pay 2008 estimated taxes.
>
> > Am I required to do it:
>
> Nope.
>
> > For 2007 I owe about $2300 in taxes, mostly due to a large capital gain
> > realized in late 2007.
> > In 2007 I withheld $11,220.
> > In 2006 my total tax was $9720.
>
> > Questions:
>
> > 1) Given the above information, can I assume there is no penalty for
> > underwithholding of tax?
>
> There shouldn't be.
>
> > 2) Assuming I withhold enough to cover taxes in 2008, am I still required
> > to pay quarterly estimated taxes?
>
> Nope. Even if you underwithhold, you're not required to make estimated tax
> payments. A penalty might apply though, if you don't meet at least one of
> the safe-harbor rules.
>
> > 3) If the answer to #2 is YES and I don't pay estimated taxes (but
> > withhold enough to cover my tax liability) am I liable for additional
> > penalties and/or interest?
>
> Yes or no. If the taxes are paid through withholding, the IRS assumes it
> was paid evenly through the year. If you make one estimated payment in
> December for the whole year, and *over pay* they could still hit you with a
> penalty because you didn't pay evenly through the year.
>
> > 4) If I have to pay estimated taxes, should I just lower my withholding to
> > compensate for the estimated taxes (in this case, since I expect to owe
> > less taxes in 2008 than 2007, I might be lowering it to close to zero --
> > am I even allowed to do that?)
>
> Just be sure you don't owe tax for 2008 and you'll be good.
>
> --
> Paul A. Thomas, CPA
> Athens, Georgia
4) If I have to pay estimated taxes, should I just lower my
withholding to
> compensate for the estimated taxes (in this case, since I expect to owe
> less taxes in 2008 than 2007, I might be lowering it to close to zero --
> am I even allowed to do that?)

You don't have to pay estimates if you cover a "Safe Harbor" with
withholding.
Do NOT reduce your withholding to pay estimates.

A;lso, Paul said you might get a penalty even if you pay a large
estimate in
December. The reason is that the IRS may think you owed it in an
earlier
quarter. There is no requirement for paying equally each quarter. To
avoid a penalty
you must file form 2210 and its Schedule A and compute any penalty..

ed