Actually, thanks to the information from Taxgirl on this blog, we elected to file an amended return and claimed the first time home buyer credit and received the money this spring.

Also if you are mostly paid in December you should be able to figure your tax and pay the right amount before January 15 2010, using the annualized method on form 2210 you should not have to worry about any penalties.

I’m paranoid about penalties though, so we’ve been having extra money withheld from my husband’s paychecks, in addition to paying “pie in the sky” tax estimations for what we “hope” to make this year, but probably won’t.

We also, for the first time ever, will have the opportunity to use a Schedule A/B because we bought a house, so that will affect our taxes too (I hope!).

All in all, it feels like a crap shoot and even though we are trying our best, we could get a penalty in the end. Which would be especially ironic if we end up getting a refund.

-90% of your current year (2009) tax (which requires you to estimate) , or:
-100% (110% if your AGI is over $150k/$75k MFS) of the prior year (2009) tax. This must be paid in quarterly.

My advice would be to go ahead and pay in whatever amount is necessary to get you to the 100%/110% of your 2008 tax since you’ve stated that your 2009 income (and therefore tax) will be much higher than 2008. The sooner you pay in, the lower your penalty will be.

Karyn, your easies solution would be to take 100%/110% of your prior year tax, divide by four, and just pay that in each quarter. The only reason I would try to estimate 2009 income is if you expect it to be much lower than 2008. However, what you’re currently doing will work for the IRS as Form 2210 provides the ability to enter your income by quarters.

As I do with all clients, if you’re withholding or lack thereof requires you to make estimated payments each year, I’d advise you to apply any overpayment to your next year tax and forego receiving a refund.

Remember however if have no withholding (totally self employed) the most important estimated payment you make is the first one. Waiting until September to make you first estimate is never a good idea unless you can show yon made no money until the third quarter. You are suppose to pay the tax as you make it.

If you have withholding but have other income you don’t have to make estimated payments you can simply increase your withholding.

To the person who wrote in, my portfolio is up too, but I won’t have to pay tax on those gains until I sell the stock. However, if you have mutual funds those capital gains will hit you this year as you get to pay the gains realized by the mutual fund. So it makes a difference as to what you are invested in, I hope your finacial advisor understands that, many do not.