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Quick Tax-Related Question
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Quick Tax-Related Question - April 1, 2008, 01:26 PM

So lets say someone (We'll call him JeeperClemson to keep things anonymous) owed a certain amount of money for taxes due to a stock option exercise and sell that didn't withhold enough federal taxes. Let's just use a number, say 5000$. Normally, in years where there wasn't said option exercise (which is every year), JeeperClemson gets a refund.

The law says I need to pay estimated taxes for 2008 if my tax liability is above 1000$, but I know that I will not be exercising any options (this was a one time thing) so my tax liability for 2008 will be back to the government owing me money.

Do I still need to make estimated payments even though they are going to be refunded back to me in full come tax season 2009?


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April 1, 2008, 01:28 PM

Quote:
Originally Posted by ClemsonJeeper
So lets say someone (We'll call him JeeperClemson to keep things anonymous)


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April 1, 2008, 01:58 PM

First, go to an IRS site or Google and pull up the Form 1040-ES, Estimated Tax for Individuals . Read it and fill out the worksheet on page 4 and it will tell you if you are likely to need to pay estimated taxes. Then the game begins. If you determine you are likely to get a 2008 refund (or break even) then you can legally not pay estimated taxes. If, however, you wind up paying more in 2008 than you've withheld, you are subject to paying a penalty on that amount (whether or not you actually pay a penalty I'm not sure...it may depend on whether you are audited, or if the IRS computer automatically bills you, or there may be a set limit where they don't bother with penalties for small amounts. The bottom line is (except for certain exceptions noted) if you expect to pay enough in withholding you don't need to pay estimated taxes. [NOTE: I'm not a tax attorney, its just my understanding of the law.] You can also call the IRS help centers, but they are notorious for giving confusing or conflicting answers...I always call at least three times to see if the answers change.
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April 1, 2008, 02:00 PM

Excellent. That was the info I wanted.

Thanks much.


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April 1, 2008, 02:41 PM

I had some crazy stuff with Hurricane Katrina and my losses, plus higher income being in DC area that really screwed up my taxes in 06 and 07. Ended up owing a shit ton of money in 07 which also meant supposedly need to pay estimated taxes.

I never made any estimated tax payments, but I did do a W4 or whatever to increase my withholding. This year I had normalcy, plus my new little tax deduction (kid), and I got a refund again... so Laissez les bons temps rouler!!


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April 1, 2008, 02:42 PM

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April 1, 2008, 04:41 PM

Quote:
Originally Posted by ClemsonJeeper
So lets say someone (We'll call him JeeperClemson to keep things anonymous) owed a certain amount of money for taxes due to a stock option exercise and sell that didn't withhold enough federal taxes. Let's just use a number, say 5000$. Normally, in years where there wasn't said option exercise (which is every year), JeeperClemson gets a refund.

The law says I need to pay estimated taxes for 2008 if my tax liability is above 1000$, but I know that I will not be exercising any options (this was a one time thing) so my tax liability for 2008 will be back to the government owing me money.

Do I still need to make estimated payments even though they are going to be refunded back to me in full come tax season 2009?
The rule for estimated payments, IIRC, is that you need to have withheld or paid 90% of your current year's tax liability or 100% (110% if last year's AGI is over $150K) of last year's tax liability or you will be subject to a penalty.

I'll find you a cite.


***http://www.irs.gov/pub/irs-pdf/p505.pdf

Last edited by rddy; April 1, 2008 at 04:50 PM..
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