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Author: Lukemark One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Estimated Tax Payment Date: 4/8/2000 12:18 AM
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With over 33,500 posts to this board, I know the answer to my question must already have been answered a zillion times--so please pardon me for bringing it here again. (I have looked through the FAQ section and read about quarterly payments, but I'm not sure whether that--or some other section--answers my situation or not.)
Anyhow, I have a problem I have never faced before. Since I'm buying a house I had to cash in a large number of my investments--which obviously triggers an estimated tax payment, yes? This payment is due by April 15th, yes?
Which IRS form do I use to figure out the (estimated) tax I owe? (Just to emphasize the point, I do not believe I am in the penalty phase of the game; all my profits were realized between January 18th and March 27th.)
Please pardon my ignorance. I just hope I am asking the right questions, but I am not even sure about that!
Thanks for your help!
A very green, wet behind the ears Fool,
Lukemark
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Author: bkcpa1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33768 of 121095
Subject: Re: Estimated Tax Payment Date: 4/8/2000 6:13 AM
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Dear Lukemark,

Yes, the estimated payment is due April 17th (the 15th is a Saturday). Which gives you 2 extra days. However, you may not need to make the payment if you don't have to. If you have filed your 1999 tax return look at Line 56 of the Form 1040. This is your total tax line. Compare that to line 64 which is the total payments. Without the capital gains you are going to report on your 2000 return if you expect these two lines to be comparable, and you will have had paid in all of the tax on line 56 by 12/31/00 by only using withholdings, you will not need to make the estimated tax payment until 4/15/01.

So be a fool and let your money work for you and the the Infernal Revenue Service.

bkcpa1

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33774 of 121095
Subject: Re: Estimated Tax Payment Date: 4/8/2000 11:53 AM
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I want to expand a little on the correct answer you've already been given. You have two issues: how much tax you'll owe and when you have to pay it.

You don't tell us whether your investment gains are short- or long-term, nor do you tell us what bracket you're in, so it's hard to give any definite information. I would suggest you get a copy of Form 1040-ES (make sure it's the year 2000 one) and your state's comparable form. The 1040-ES has a worksheet which will guide you in determining what you're estimated tax is. Once you've determined how much additional tax you're going to owe, get that money put aside so you know it'll be there when you need it.

Once you've done that, your goal is to pay as little estimated tax as possible while still avoiding the penalty. You'll pay the balance 4/15/2001. For this part of the process, go back and re-read the "safe harbor" information in the FAQ article on Estimated Taxes.

TMF ExRO
Phil Marti

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Author: Lukemark One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33783 of 121095
Subject: Re: Estimated Tax Payment Date: 4/8/2000 1:39 PM
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bkccpa1
Now I am more confused (please forgive me), probably because I do not understand whether we are both referring to the same tax returns in our terminology. So I will spell this thing out so that I can understand what you are telling me.
On my 1999 return (the one which must be filed by April 17, 2000) I show a total tax of $1900 on line 56 and tax payments of $750 on line 64. From my current understanding of things, however, I am figuring that I do not owe any penalty because on my 1998 return (filed by April 15,1999) I had no tax liability. So I owe only $1150 and no penalty, right? Is this the kind of stuff you are talking about?
Back to my original question--or at least a version of it--then. Since I have realized capital gains from having cashed in some of my investments during the period of January 18,2000 to March 27, 2000, do I need to make an estimated tax payment by April 17,2000? If so, how do I figure it? Is there a specific form on which to figure it? Is there any chance that I report it somewhere on the 1040 form of my 1999 return (the one due by April 17, 2000)? Incidentally, in case this is a consideration, I do not think the amount of money withheld throughout the entire 2000 calendar year will cover the tax owed from my realized capital gains during this quarter.
Thanks in advance for your patience with the basic nature of my questions and for your help.
Sincerely,
Lukemark

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33786 of 121095
Subject: Re: Estimated Tax Payment Date: 4/8/2000 2:13 PM
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bkccpa1
Now I am more confused (please forgive me), probably because I do
not understand whether we are both referring to the same tax returns
in our terminology. So I will spell this thing out so that I can
understand what you are telling me.
On my 1999 return (the one which must be filed by April 17, 2000) I
show a total tax of $1900 on line 56 and tax payments of $750 on
line 64. From my current understanding of things, however, I am
figuring that I do not owe any penalty because on my 1998 return
(filed by April 15,1999) I had no tax liability. So I owe only $1150
and no penalty, right? Is this the kind of stuff you are talking about?


Correct.

Back to my original question--or at least a version of it--then. Since I
have realized capital gains from having cashed in some of my
investments during the period of January 18,2000 to March 27, 2000,
do I need to make an estimated tax payment by April 17,2000?


Yes

If so,
how do I figure it?


The easiwest and cheapest method is to pay 1/4 of $1,900 or $475 per quarter ON TIME.

Is there a specific form on which to figure it?

Read form 2210 and you lear this. This is the Short Method at the bottom of the first page.

Is there any chance that I report it somewhere on the 1040 form of my
1999 return (the one due by April 17, 2000)?

NO

Incidentally, in case
this is a consideration, I do not think the amount of money withheld
throughout the entire 2000 calendar year will cover the tax owed
from my realized capital gains during this quarter.


I didn't know you had withholding also. Instead of the 4 payments above, have your employer withhold at least $1,900 in year 2000, or make up the difference with the 4 equal and on time installments.

If you don't know how much withholding you'll have and may be fired and not get another job, make an estimate payment on 4/17/2000 of $475 minus your withholding in Jan, Feb and March. You'll may have to fill out the Schedule AI with your 2000 return, and it gets complicated whether you average, or apply, withholding, but you won't owe a penalty. Ed


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Author: bkcpa1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33819 of 121095
Subject: Re: Estimated Tax Payment Date: 4/9/2000 6:18 AM
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Dear lukemark,

The only amount that you are obligated to have paid in by 12/31/00 is $1,900. Pay that amount by the end of the year and you are not subject to Form 2210 penalties. The amount of the payment only needs to be $275. Computed as follows:

1999 Tax $1,900
1999 Withholdings 750
Balance Due $1,150

You assume the same withholdings and pay the balnce over 4 quarters. At $287.50/quarter. Make it easier and round it to $290.

Even is you pay this amount by 12/31 and have a balance of let's say $3,000, you will not have any penalties.

Hope this helps.



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Author: Lukemark One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33866 of 121095
Subject: Re: Estimated Tax Payment Date: 4/9/2000 5:14 PM
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Thanks a whole lot for your help! I knew I would not owe any penalties this year, but I was afraid of being liable for penalties for next year. I was also afraid that I would be liable for a lot more in payments for this quarter than what either you or a previous poster figured out for me. So thanks, again for you guys' help. Hope I can someday return the favor. Sincerely, Lukemark

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