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2) You don't need to make quarterly payments. of the so-called safe harbors, when penalties don't apply, is to have your withholding exceed the previous year's actual tax.

Lorenzo is correct. In fact, I would recommend that you calculate a worst-case scenario of what the most your tax liability could be. Then set your witholdings at whatever you feel comfortable with so long as they total more than 2002's tax liability. Finally, set aside enough of your earnings throughout the year in a money market fund earmarked for taxes to cover the worst-case scenario (less your withholdings). Come next April (2004), withdraw whatever you need to pay your tax bill and use the extra interest for a gift for yourself (and your fiancee). Why give the government all that money interest free?

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