the way I see it, estimated taxes are a huge pain. Anyone here not pay them and settle for the penalties at tax time? If you are losing money during a certain quarter (and you have paid outstanding dues), I guess penalties would be next to nothing, so there isn't much reason to pay them then I guess.
There was a thread titled "How often does a day trader pay taxes" There are some posts on how to minimize ES and at the end I did a calculation of a hypothetical penalty. Personally, I don't think it is the amount of the penalty that comes in to question it is WHO is issuing the penalty.
The taxes we have to pay in the US are a "Pay as you go" system....sure you can get away with not paying your estimated taxes and just pay the penalty. However, once you get your name in the IRS little black book they can cause you all kinds of trouble for years...you know.... the kind of hassles you can not put a price on.
How are estimated taxes a pain? All you do is write a check four times a year and send it off in an envelope. If you are a profitable trader, paying estimated taxes is going to save you a bundle. If you are a trader and don't know what your ultimate taxes will be, just pay in enough to match 100% of last year's tax bill so you won't be penalized. So here is the recipe: 1. Look at the "total tax" on your last 1040. 2. Divide that number by 4 to get your quarterly payment. 3. Send that amount in each quarter with a little 1040V voucher. Aaron
I believe that (assuming that I still have some brain cells left from business school): As long as you pay 110% of your previous year's tax obligation, the IRS cannot penalize you.
The thing you have to realize about US tax code is that you are obligated to pay as you get paid....as someone already mentioned. When April comes around and people pay their taxes, that is just the "recording" of you income and due taxes and reconciling the differences...but, as you knw, taxes are taken out of people's W2 every pay day. Sucks but thats the way it works.