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"As for the underpayment penalty, the rule of thumb is that if you start making money in the first or second quarter -- but you aren't sure that it will yield a net profit for the year -- you do not face an underpayment penalty for failure to file estimated tax payments"

The rules of the IRs are that you owe a penalty if you underpaid your taxes in any quarter.

Yes, if you underpaid taxes that are clearly going to be due. But the question is whether the person will indeed have any tax liability, a question which can only be answered by going through the many worksheets and computations -- which include anticipated expenses that would reduce the income, taxes withheld on W-2 wages, and whatnot.

"They have that name because they're supposed to represent your *estimate* of what your eventual tax obligation will be."

I don't know what you meant by this.

That's because you're working way too hard to be argumentative.

"On the other hand, if you do make a ton of money from which no money has been withheld, and your expenses are minimal, then you should file the estimated payments as described in IRS instructions ("

It's too late if he followed your "Rule of Thumb" advice about what to do in early quarters. Also, lets give him a specific place to look. Get IRS form 2210 and its instructions, or form 1040ES and/or Publication 505

Sorry, I was making the assumption that RAD was not mentally deficient. If you plug the word "estimated" into the IRS search window it will turn up Publication 505 among other things.

At a certain point the discussion exceeds a board like this and my suggestion was that he go to the source. You can also call the IRS up on the phone and ask questions. We're all paying for the service, might as well use it.

"Back to ed's comment at the top - there seems to be some more confusion insofar as the 1099 is concerned. The 1099 is purely an informational form...... "

It's pretty obviouos from the OP's post that he is in a self employment situation (not collecting interest), didn't know what a Schedule C is, nor that his conferrence was a legitimate expense.

Which is why I answered all those questions. How come you did not? And why are you pestering me for having helped out? Referring to the 1099 interest form was a way of explaining that 1099 forms by themselves were not limited to self-employment income. Sorry you missed that point.

Let's keep it simple. Save this so you can just paste it into a future reply on the same subject

Yo, cut and paste THIS.

Your message is condescending and totally uncalled for. Also ironically comical, when you say keep it simple -- and then write:

....1/4 of your last year's tax (110% if last year's AGI was over $150K), or more than 1/4 of 90% of this years tax, or after withholding only they are within $1,000 of your current year's tax

There's nothing "simple" about most IRS forms, and it's foolish to pretend otherwise. For the sake of clarity I cited examples of "simple" cases in which nothing would be owed, or to draw a distinction between self-employment and other income.

*At no point* did I tell him that he would be free from tax obligations. On the contrary, I said that he should be going to the IRS for information, rather than asking here, and acquainting himself with the rules and regs so he does not get caught in a bind.

...For a married SE netting under 90K he only has to deposit estimates of .11127 of net Schedule C income which is the discounted rate on .9235 of income, after deducting the effect of a 25% tax bracket line 28 deduction, all times the safe harbor 90%. Or, if in the 15% bracket, .11763.

That's enough to cross your eyes and make your head swim.

It seems to me that my version was easier to understand: "Ed's reference to the 15% self-employment tax is accurate but is also subject to many computations."

There are many places in a tax return where the IRS wants the taxpayer to calculate various scenarios, then report the results back to another form, and sometimes add or subtract the results, compare them, or otherwise massage the data. The estimated tax forms are a good example. The Form SE is another. The AMT is another. And so on.

There are many cases where you have to do a whole bunch of arithmetic just to find out that the first answer was the one you end up using. All those computations are a pain in the neck, so most people are well advised to use any of the better tax programs out there to do the work automatically. It sure doesn't make for easy reading in a setting like this.
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