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According to my calculations:
1) if there's no AMT patch I will owe a few thousand dollars in AMT - mostly because I live in a high tax state (NJ). Mortgage interest for a primary resident and charitable count as deductions for AMT, but state income and local property taxes don't, right?
2) in this case I will not quality for any safe harbor for penalties. Primarily bc last year we paid a chunk of extra capital gains taxes, so I could not/did not choose to withhold enough to meet the "100% of prior years taxes" safe harbor.

So my question is... If no AMT patch is decided by Jan 14 or so, should I mail in an estimated payment to cover the AMT extra in order to avoid penalties? Or is there some exclusion for penalties with regards to AMT (seems unlikely - unless maybe there's word of a special thing for this year)?

Of important note - in the event an AMT patch was passed after I mailed it in, while annoying, it would not be a hardship to do without the few thousand for a couple months.
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If no AMT patch is decided by Jan 14 or so, should I mail in an estimated payment to cover the AMT extra in order to avoid penalties?

If I understand you've made no payments other than withholding during 2012 and you're wondering whether you should make an ES payment that would bring you to 100% of 2011 in order to avoid an underpayment of ES penalty.

It's too late to completely avoid a penalty, which is calculated as interest from the due date to the date actually paid. Thus you would owe the penalty on the first three payments regardless of what you do now. The rate is currently 3% per annum. I believe it's been constant throughout the year.

Phil
Rule Your Retirement Home Fool
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I may be completely off base but I thought AMT patch for 2012 was enacted in 2011. What is now needed is an AMT patch for 2013. The annual game the clowns/cowards in Washington play.
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If I understand you've made no payments other than withholding during 2012 and you're wondering whether you should make an ES payment that would bring you to 100% of 2011 in order to avoid an underpayment of ES penalty.

I was actually thinking of making a payment to bring me to 100% of 2012, not 2011. But otherwise yes.


It's too late to completely avoid a penalty, which is calculated as interest from the due date to the date actually paid. Thus you would owe the penalty on the first three payments regardless of what you do now. The rate is currently 3% per annum. I believe it's been constant throughout the year.
But if I make the estimated payment and don't owe anything come filing time (even get a small refund perhaps), I still have to pay a penalty because the 1st three quarters were low? Or no?

Even if I still do, sounds like it'd still be worth it to avoid a portion of the penalty, don't ya think?


I may be completely off base but I thought AMT patch for 2012 was enacted in 2011. What is now needed is an AMT patch for 2013. The annual game the clowns/cowards in Washington play.

Nope, in 2010 the patch was enacted for 2010 and 2011. No patch was ever enacted for 2012. Everyone was waiting for the election to see what happened.

A few sources to back that up:
http://www.politico.com/story/2012/12/ex-irs-chief-no-amt-pa...
http://taxfoundation.org/blog/2012-likely-be-first-year-with...
http://www.forbes.com/sites/anthonynitti/2012/12/12/while-th...
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But if I make the estimated payment and don't owe anything come filing time (even get a small refund perhaps), I still have to pay a penalty because the 1st three quarters were low?

Yes. It's a pay-as-you-go system.

You have the information to calculate how much the penalty would be, so you can compare that to what the opportunity cost of the ES payment would be and make a fully-informed decision.

Phil
Rule Your Retirement Home Fool
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Yes. It's a pay-as-you-go system.

So, as a corollary to the current discussion: we've been up-to-date on taxes throughout 2012. During this last week, we converted a portion of a traditional IRA to a Roth IRA. This conversion causes us to owe taxes. However, since this happened in the 4th quarter of 2012, if I pay the additional taxes by 15 January, I continue to be current?

Thanks.

Kathleen
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It's too late to completely avoid a penalty, which is calculated as interest from the due date to the date actually paid. Thus you would owe the penalty on the first three payments regardless of what you do now. The rate is currently 3% per annum. I believe it's been constant throughout the year.



so if i pay NO ES and end up with taxes of $1000, the penalty is $30?

and if i send in the $1000 now as ES, the penalty is still pretty much $30?



[FWIW: TurboTax says if i owe (approx) $3500tax, penalty is $67
but if i pay $3000 ES by 1/15, penalty is $45
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During this last week, we converted a portion of a traditional IRA to a Roth IRA. This conversion causes us to owe taxes. However, since this happened in the 4th quarter of 2012, if I pay the additional taxes by 15 January, I continue to be current?

Maybe. Maybe you don't have to pay anything in advance to avoid a penalty. Maybe you have to file an annualized income statement with your return to avoid a penalty.

Rather than rewrite the book on how to avoid the ES penalty (there are multiple ways), I'll just refer all to Pub 505.

Phil
Rule Your Retirement Home Fool
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so if i pay NO ES and end up with taxes of $1000, the penalty is $30?

No. If total tax minus withholding is $1,000 or less you don't have to make any ES payments to avoid a penalty. Pub 505.

Phil
Rule Your Retirement Home Fool
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I thought AMT patch for 2012 was enacted in 2011.

No, they never patched 2012. The IRS is warning that it could be the end of March before they can process some returns.

The press is reporting on only the "big news" items such as brackets and extending unemployment benefits so it's hard to tell whether any other expiring provisions, e.g., deduction of state/local sales taxes, are in the mix or not. If they do make a deal we'll likely have signed legislation before we have a chance to see all the details.

Phil
Rule Your Retirement Home Fool
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Rather than rewrite the book on how to avoid the ES penalty (there are multiple ways), I'll just refer all to Pub 505.

The easiest I think would be to change withholding if you're getting a paycheck. At least my understanding is that $ withheld from the paycheck are better than an estimated payment for avoiding penalties.

I *think* that if all $ paid to the IRS comes from paycheck withholding, and you're within $1000 of your actual taxes there won't be penalties.
(But I have not looked at the pubs in a while. I'd listen to the more expert people on here like Phil if they say I'm full of crap.)
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so if i pay NO ES and end up with taxes of $1000, the penalty is $30?

No. If total tax minus withholding is $1,000 or less you don't have to make any ES payments to avoid a penalty. Pub 505.



by 'withholding', you mean Withholding, not Est.Payments ...yes?
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by 'withholding', you mean Withholding, not Est.Payments ...yes?

Correct.

Phil
Rule Your Retirement Home Fool
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Thanks.
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