estimated taxes penalty

Discussion in 'Taxes and Accounting' started by fusionz, Feb 14, 2006.

  1. fusionz


    If I made 170k in 2004 with taxes of 40k, and then made 260k in 2005 with taxes of 65k, am I charged the penalty on the 40k or the 65k?

    And when does the penalty usually get billed to you, a few months or few years after april 15?
  2. GTC


    I think it is every quarter except for the last quarter. The last quarter's tax is due by the first working day after April 14th .
  3. sprstpd


    The penalty would be applied on the previous year's tax plus maybe something like 10%+ (because you made more than 150k you have to pay more). So the penalty would be applied to something like 44k.

    The penalty would be due on April 15th.
  4. IRS would normally bill you for the penalty + interest about 6 to 10 weeks after you file the origianl tax return.
  5. isnt the penalty just the interest or have things changed?

    Estimated tax" penalty
    The internal revenue service wants you to pay estimated taxes on an as-you-go basis. If you receive wages, taxes are withheld as the wages are earned. However, for other types of income - such as self-employment income, interest, dividends, capital gains, etc. - there is no employer to withhold taxes, but the internal revenue service still wants to collect taxes on an as-you-go basis. Thus, for these types of income, you may have to make "estimated tax payments" or be subject to estimated tax penalties. Estimated taxes must be made in four equal installments, payable on April 15, June 15, September 15, and January 15.

    The estimated taxes "penalty" is something of a misnomer, in that the penalty is really just interest. Calculation of the penalty is based the internal revenue service underpayment interest rate times your estimated tax underpayment.
  6. The + interest applies if the taxes are not paid in full by April 15th.
  7. As long as you pay last year's tax + 10%, then you will owe the difference between what you paid in tax and the properly calculated tax you owe for greater gains in 2005. So if you paid $40k for 2004, then you should be paying quarterly estimated taxes of $11k for a total of $44k. You will then figure out what taxes you owe by the next tax return (March 15 for corporations and April 14 for individuals). At that point, you will pay the tax you really owe less the $44k.

    I trade under a corporation, but it should be similar for an individual. Check with a tax attorney or ask at a tax forum online. I'm pretty sure I'm right but check for yourself.