Because I am a fan of Living Below Your Means, and every phone call to our accountant is charged 1/4 hour [$48.50] no matter how short it is, I thought it might be a good idea to ask Fools instead if they believe I've been correctly informed about paying estimated taxes.We have received over $100,000 for selling some land this month, and owe cap gains taxes on it. The question is whether we need to pay those taxes before April 15th. We've been told that because there is no similar tax owed from last year's taxes, then it is assumed that we couldn't predict that we'd get this money this year, so we needn't pay estimated taxes on it in January but can leave it invested until April.Can that be right?It may be right, but not for the reason you were given. The "type" of tax and the predictability of the taxable income are both irrelevant to whether you have to pay estimated tax or not. If you have the income, you have to pay the tax. However, there are some "safe harbor" exceptions that allow you to defer paying the tax until April 15. One of them is met if you pay in estimates or have withheld more tax in 2003 than your tax liability for 2002 (somewhat more than 100% if yuour AGI is more than 150K). Normally this is easy to meet for salaried employees who get a raise. With the reduction in tax (and withholding) rates this year, you should check your taxes withheld to date and project your total for the year. You may want to have your employer take out some extra tax in December to insure you meet the safe harbor.Ira
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