Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (23) | Ignore Thread Prev | Next
Author: craig110 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Re: Estimated tax payment question Date: 4/21/2002 7:32 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0

>Essentially, what I'm asking is, if I am making $15000 less in 2002 than 2001 (due to not receiving a $15000 bonus this year) can I simply plan on estimating my taxes based on what I know my income for 2002 to be without my 2001 taxes entering into the picture? The reason is that my tax burden for 2002 (after working through 1040-ES 2002) is approx. $2200 whereas my taxes in 2001 was $5400. All that is required for me to get to $2200 is withholding another $150/mon on my W-4 for the rest of the year, however, to reach $5400 would cost me $$$$ each month.


Wade,

Yes, your question is understandable and yes, you do not have to base your tax withholdings on your 2001 taxes. There are two ways of staying out of the IRS "penalty box":

1) Witholding enough so that the amount you owe isn't more than 10% of the total amount of tax, or,

2) Withholding enough so that the amount you've withheld over the year is at least 100% of your previous year's total amount of tax. (110% if your previous year's AGI is greater than $150,000 for MFJ.)

#1 requires you to prefigure your income tax which includes predicting factors such as what kind of capital gains and losses you think you'll have in the rest of the year and then making adjustments as the year goes on if your predictions don't hold correct. #2 is an easier number to shoot for since your previous year's total tax bill is known. Therefore, lots of folks aim for rule #2 and not rule #1 just to simplify things. The suggestion you are questioning was an example of rule #2. Given what you've said, since your total tax this year should be quite a bit lower than your tax was last year, you would be (as you noted) severely over-withholding if you aimed for rule #2. In your case, aiming for rule #1 seems to makes the most sense.


Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (23) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Macro Economics

Russia Collapsing Again?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement