Taxpayer asks:
Tax Girl: Nice blog, I came across your site researching my situation. Last year I got back a refund (because my investments tanked and I had a capital loss) so this year I did not send in any estimated tax payments. I meet with my financial advisor yesterday he said my portfolio is up, really up 
, I will have taxable capital gains and interest income and I should mail money to the fed and the state. How do I get a voucher? What address do I mail it to? I missed the 9-15 date, is there a penalty? Should I mail the money right away or before the 1-15-10 date? I am sorry but the IRS site and my state site give me a headache to look at. 
Any other sagacious information you can give me is very welcomed.
Taxgirl says:
I’m going to totally confess that I had to look up sagacious – but now, I’ll take it!
If your advisors have determined that you need to file estimated payments, you’ll need to use a federal form 1040-ES. You can get a copy of the federal form 1040-ES by calling the IRS (1-800-829-3676), visiting their web site or downloading it here (as a pdf). The mailing address for the form and payment varies depending on where you live – you can find the addresses on the form. There’s also a worksheet so that you can figure out how much to pay.
An excellent resource for state forms can be found at the FTA State Tax Forms Page.
It’s important to try to file by the applicable deadlines but if you miss one, don’t assume all is lost and just ignore it. Just file as soon as you can. Penalties are imposed on each underpayment for the
number of days it remains unpaid – so it’s to your advantage to file as soon as you can.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook at http://www.facebook.com/taxgirl
Taxpayer asks:
I’m a recent college grad working 2 full-time jobs and doing some free-lance work on the side. I have recently been asked to provide a w-9 for a $300.00 invoice I sent to a client, who happens to be my old boss. I was wondering, how much money should I withhold to pay my taxes? Also, do I have to file quarterly, or can I wait until the end of the year?
Thanks so much!
Taxgirl says:
To the extent that you have proper withholding on your full time jobs, you won’t need to worry about estimated payments for income related to those.
However, with respect to your freelance job, you may need to make estimated payments. The general rule is that you need to make estimated payments if you expect to owe more than $1,000 in tax and you expect your total withholding and credits for 2009 to be less than the smaller of:
- 90% of the tax to be shown on your 2009 tax return or
- 100% of the tax shown on your 2008 tax return.
There is an exception, which I’ll point out especially since you note that you’re a recent college grad: You do not have to pay estimated tax for 2009 if you had no tax liability for the full 2008 tax year (partial tax years don’t count). You had no tax liability for 2008 if your total tax was zero or you did not have to file an income tax return.
With respect to the timing of the payments, you should pay in four equal installments:
Note that you don’t have to make that 4th payment in January if you file your 2009 return by February 1, 2010, and pay your total tax with that return.
To figure out how much to pay, you have a couple of options:
- Estimate your tax due for the year 2009 and pay at least 90% of the tax – just divide 90% of your estimated tax liability into four equal installments.
- Pay 100% of prior year tax, or 110% if your prior year adjusted gross income over $150,000.
You can figure how much to pay using the estimated tax worksheet found on the form 1040-ES (downloadable here as a pdf). You can also use a software package like TurboTax to figure the tax for you (I highly recommend this option). The form 1040-ES also explains where to send your payments.
If all of this seems much too complicated, you can always ask your employer to simply withhold a little more on your paycheck so long as the numbers work out.
One more note: There is a quirky provision in the 2009 stimulus bill that provides some relief for those who have to pay estimated tax. If your 2008 AGI shows that at least 50% of your income came from a “small business” (fewer than 500 employees) and your AGI is less than $500,000, you can pay just 90% of your prior year’s tax to avoid a penalty instead of 100% – the 90% also applies to the those with AGI more than $150,000 (meaning that you can pay 90% instead of 110%).
Estimated payments can be tricky but don’t panic. There are lots of opportunities during the year to “fix” any bad estimates (for example, if you’re making lots more than you planned) and safe harbors apply for those taxpayers subject to the estimated tax for the first time. Once you start making estimated payments, it’s pretty easy to figure it out for the next year: usually the first year is the most difficult (that’s why they have the safe harbors!).
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
Taxpayer asks:
I started a single member LLC this year, and need to make estimated tax payments.
When I went onto the IRS site to make payments, it asked for either my EIN or my SSN for the payments.
Am I making payments on both?
Taxgirl says:
You’re only making payments for the LLC once.
The big question is whether you are operating as a disregarded entity. If you are (and most single member LLCs do), then you don’t need the EIN – just use your SSN. You’ll report your tax info directly on your form 1040 since there’s no separate return for a Single Member LLC treated as a disregarded entity for tax purposes. So, when calculating estimated payments, file your estimated taxes using a form 1040-ES.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
Taxpayer asks:
This is my situation. In 2007, I sold a bunch of stock my grandpa gave me, and had a gain of roughly $8,000. I had my regular income at around $50,000, and $6,583 was withheld. I did not make any estimated tax payments throughout the year. I owed $1,271 in taxes.
My question is:
1. Do you know if I will be penalized, and if so, what the penalty would be? I am 25 and this is my first time I’ve owed taxes.
2. TurboTax has me making estimated tax payments for 2008. Do I need to make these, as the stock sale was a one time transaction and next year, I’m anticipating a refund with my current withholding.
Thanks for your help!
Taxgirl says:
1, The short answer is that you shouldn’t be penalized for not making estimated payments if you did not have a tax liability last year. For information about the safe harbor rules, you can check out my prior post on estimated payments.
2, TurboTax is going to assume that your situation is the same next year as in the current year unless you tell it different. So, if you would have received a refund had you not had the gain from the stock, then you don’t need to make estimated payments. However, if you’re going to have a liability next year, you will need to make estimated payments in order to avoid an underpayment penalty.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
