The article mentions an 8% penalty.Now say i want to just wait,not pay any estimated taxes,and pay my entire tax bill on April 15, I just want to know on what is that 8% calculated on. Is it your entire income for the year,entire amount you owe for the year,or what?
Vinny1, The penalty is calculated each quarter based on the current interest rate at that time. So if you underpay one quarter but overpay the next you could get hit with a penalty. You can use form 2210 and attach it to your return and pay the interest. Or if you prefer the IRS will be nice enough to calculate it for you and send you a bill. They're swell that way.
Thanks.So sometimes it could be advantageous not to pay the estimated taxes each quarter,wait until April 15 to pay the entire tax bill,if you think you could earn a return greater than the penalty percentage with the money you would have paid each quarter.
My best friend ending up owing about 25K in taxes the year before last and the penalty he paid relative to what he earned was negligible. The only reason that it is not a good idea is the IRS is like the kid in school that no one liked but no one picked on either. I think due to the damage and pain and IRS agent could inflict, there are easier float games to play. But I have seen people recommend just what you are proposing so use your best judgement.
trdrmac, very good replies. regarding the estimate taxes, the IRS is pretty clear about it, you must pay it. of course you can avoid it, but as you pointed out it is not so smart. As a minimum it flags you, which is never good (although I don't think that is used to trigger more action). I don't want to attract attention to me, I guess you would think the same. tntneo
I do agree, I could not find anything that says it is illegal, but that does not mean that it is not. As for a flag, if you are working from home and claiming other deductions that presents a flag in and of itself. I don't know that late penalties in a single year would trigger anything, but if someone was constantly late on their taxes it is not too much of a stretch to assume they may be playing other games. What I did notice is that you can pay ES with a credit card. I am not sure if there is still a surcharge (there was for end of year filing in the past) but if you wanted to float your taxes it may be safer to pay it on a credit card and then just keep rolling it with transfer checks until tax time. Too much for me to keep up with, but still another angle. Regards,
trdrmac, I am a self-employed individual (no w2) and am new to trading (this is first year). I am considered a "Trader" but did not elect to go mark-to-market. From what I have uncovered, there are very few CPA's that have a good grasp on active trading (vs. investment income) and tax implications of such. In fact, the leads that I followed-up on in my city (not a major city, at that) have all been dead ends. Do I need to go to a major metropolitan area to find a good CPA in this field? If so, how would one go about determining such (i.e. evaluating CPAs)? Any recommendations in the SE area of the US would be great! BTW - The nearest metro areas are Nashville, TN and Atlanta, GA. Thanks!
Finally, pick up JK Lassers Tax Guide or Ernst and Young's tax guide and read through the pertinent points. They are only 15$ or so and will keep you out of trouble. The IRS has many publications on topics that are downloadable in Adobe format. I try and stay away from some of the "speciality" publications as SOME are a little expensive and take some aggressive positions that don't always jive with the internal revenue code. I MOVED THE ABOVE UP SINCE THE REST OF THE MESSAGE IS LONG. I worked for a big 5 accounting firm in their tax dept for a while before switching to consulting. Needless to say I was not impressed with the way taxes (business or personal) were handled. It seems to me that unless you have a lot of money you are basically paying for keystrokes and not tax planning. To give you to instances that came up for me recently, my buddy that I mentioned in another post asked me about the MSA rules for health insurance, he then took the idea to his CPA who said "that's a good idea". For the money he is paying this guy that is the sort of thing I would want a CPA bringing to me. My girlfriend's mother could not deduct expenses on a rental property because she did not advertise it for rent while fixing it up. These are the types of things if I was meeting with a CPA I would want presented to me as they relate to trading. You could call around to CPA firms and meet with people face to face if you can not get a referral from a trader friend who is satisfied. And I would weigh what he/she says with what your objectives are and how much they cost. Probably more specializing in a bigger city, but finding a true specialist may still be tough. For instance based on what you said you need to start making at least minimal estimated payments, with your next payment due June 15. This goes on 1040-ES, TN has no State tax but GA does. Next would be something like Mark to Market election. Based on your situation, I would wait on this until you are 100% sure this is what you want to do. This goes on 3115, but a CPA might suggest that you get a letter ruling from the IRS before filing. This would be written commentary from the IRS that based on your trading information on wether MTM is appropriate. Business expenses and section 179 should be discussed, how much "trading" income you have, and how to they propose handling it? If they start talking about Nevada Corporations or Offshore Accounts I would run the other way. So if your income justifies it, I would pay a little to lay out your situation and find someone who wants to work for you. If they just want your "Shoebox" of receipts on April 1, you are as well served going to Jackson Hewitt or HR Block in my opinion. I use the over the counter software, and other than a few bugs (like my roth conversion amount did not flow correctly) it is just as good. In fact, at the aforementioned big 5 who had their own software I had those type of issues, so a manual check is always necessary.