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Perhaps this has all been much ado about nada.

Well, fleg, I've been posting installment advice and suggestions on these boards for over 4 years and I'm not picking on you, but your questions typically illustrate people trying to do the right thing but frustrated by the threat of "Penalties" or the dreaded 2210 AI form. If you understand the logic behind all this it does make nada out of much ado.

You were worried about end of year distributions and shifting your income and what to do about underpaying your first installment. These are concerns of most people with uneven income, and I tried to show you how to do it correctly, and if you want, how to take advantage of the IRS rules for the 2210 AI.

You probably overpaid your first installment (due to the tax law changes if you'r going to use one of the "safe harbors"). If you still intend to pay uneven installments, don't. To use what you're doing (uneven installments) to eliminate penalties you'll have to file the 2210 AI. If you want to avoid penalties and not fill out the forms:

#1. Don't pay any installments unless they are EQUAL and ON TIME. For this year, deduct the amount of the first installment you paid from the amount you paid in June. Apply the excess June installment against what you will owe in September (at the same amount as April installment). Pay the same amount next January. You may consider this as "equal and on time" installments if you need the short method of figuring your panalty. IF this doesn't total 90% of known 2003 tax, or last year's tax, increase your wife's withholding for the rest of the year to meet a safe harbor along with your above installments. IF you get a big income in December, increase wife's withholding-- a whole paycheck or more if necessary.

Conversely, if the above computed installments are too much apply the excess April and June installment amounts toward September and pay the same reduced amount in January.

#2. IF you can't increase withholding in December enough (due to end of year distributions, pay an installment and file the 2210 AI. IF you kept track of income by tax quarter (pretty easy in Money or Quicken or your own spreadsheet) your TT or TC or TA software will do the AI for you.

#3. In future years, set your wife's withholding to cover 90% of your known annual income's tax liability. Use one of the two estimaters I gave links to for 2003. It's useless to use last year estimaters in 2003 or 2004 (in most cases). Then IF you know of any unusual income later in the year (you can get mutual fund distribution info early) increase wife's withholding.

I hope this helps you, and/or someone. Ed
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