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The number the IRS is looking for is your tax liability.
If this is your first year of trading, just be sure that your withholdings are what your total tax bill was last year and you'll be fine. If you make a habit of making winning trades and owe a lot of taxes, that's a good problem to have.
If you make that $18k each quarter this year and it adds $72k to your taxable income, then in 2017, if you start turning in big winning trades again, you'll have to cough-up some estimated tax payments.
If you go back to NOT trading, then you would not have to do anything.
For this year, you won't have to do anything as long as your wages are about the same.
This is what I essentially wrote, so you are agreeing with me then.
This is what I essentially wrote, so you are agreeing with me then.
Kind-of. I was also kind-of agreeing with SportyandMisty.
If a person makes a habit of making money from trading and they have a great quarter after having a good year, they will have to make estimated tax payments to avoid a much much larger penalty than the $70 you said you maxed-out at.
( I'm using "great quarter" as $200k and "good year" as $100k below. )
It doesn't matter if they make $200k in Q1 and then lose $300k in Q4, if they made $100k in the prior year, they better cover the tax on $200k and then apply for a refund later.
I get what you are saying that the year isn't over till it's over, but the IRS doesn't care about that. If you didn't cover your estimated tax payment, the penalty on underpayment of tax on $200k is going to be a lot more than $70. This applies even if you lose money overall for the year.
It's not fair. There is no expectation of making $200k every quarter, but the IRS can lock you out of your house if they want. Some people enjoy conflict and relish the thought of going to court against the IRS. I get my jollies from other stuff.
The IRS does not lock you out of a house, they want you to pay period. My daughter knows a guy who under estimate his tax due to self employment, he gets to pay tax back slowly. My sister said it could be even 20 years. But you have to pay interest.
The IRS does not lock you out of a house, they want you to pay period.
They can seize any asset they want. That's not the point anyway.
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Originally Posted by NewbieHere
I think as long as you .... But I underpay every year, ...
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Originally Posted by NewbieHere
You can disagree but I never have to pay estimated tax. Some years, I owed $7k more than what I already paid, but I only paid like $70 penalty.
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Originally Posted by NewbieHere
My daughter knows a guy .... My sister ....
Do you have any evidence that isn't anecdotal?
People are always giving anecdotal evidence for stuff they can do on their taxes, but that doesn't mean that their tax returns passed an audit or were prepared by someone who actually knows what they are doing. It just means they didn't get caught.
The advice given is to match the 2015's liability or 90% of 2016's final liability over the current year, so by April 17, they need to have paid in 25% or 22.5%. If they are still a W-2 employee, they can adjust their withholdings.
The OP made $18k ( so far ) this quarter.
-o- How do you know that they aren't already in the 25% bracket?
-o- How do you know that they will or won't have W-2 income this year?
You cannot just glibly say they won't owe more than $70. Your experience is irrelevant.
The penalty is 0.5 percent of the total amount owed calculated for each month not paid. ( If 25% bracket) that would cost $450 just for the estimated payment not made on April 17, 2016. There would be two other parts to the total penalty and that doesn't count interest. ( This also indicates that your $70 penalty was not calculated correctly. )
Addendum: I just learned this bit, actually - If this is the first year that you’ve had an underpayment, the penalty is waived – but if you do it two years in a row – you’ll owe the extra money.
Also not mentioned above: If your underpayment is less than $1,000 - no penalty.
I will suggest that you read the Form 1040 instructions, or get clarification from a CPA. There is more to this than just making sure the total for the year meets some percentage. Taxes on erratic or unexpected income are generally paid via estimated payments, made on a quarterly schedule.
For example... This is straight from the IRS website:
You may owe this penalty if:
[...]
- You didn't pay enough estimated tax by any of the due dates. This is true even if you are due a refund.
They can seize any asset they want. That's not the point anyway.Do you have any evidence that isn't anecdotal?
People are always giving anecdotal evidence for stuff they can do on their taxes, but that doesn't mean that their tax returns passed an audit or were prepared by someone who actually knows what they are doing. It just means they didn't get caught.
The advice given is to match the 2015's liability or 90% of 2016's final liability over the current year, so by April 17, they need to have paid in 25% or 22.5%. If they are still a W-2 employee, they can adjust their withholdings.
The OP made $18k ( so far ) this quarter.
-o- How do you know that they aren't already in the 25% bracket?
-o- How do you know that they will or won't have W-2 income this year?
You cannot just glibly say they won't owe more than $70. Your experience is irrelevant.
The penalty is 0.5 percent of the total amount owed calculated for each month not paid. ( If 25% bracket) that would cost $450 just for the estimated payment not made on April 17, 2016. There would be two other parts to the total penalty and that doesn't count interest. ( This also indicates that your $70 penalty was not calculated correctly. )
Addendum: I just learned this bit, actually - If this is the first year that you’ve had an underpayment, the penalty is waived – but if you do it two years in a row – you’ll owe the extra money.
Also not mentioned above: If your underpayment is less than $1,000 - no penalty.
So, telling the truth is not acceptable. The penalty was calculated by the IRS, they sent me the bill for $70, so let's not assume anything. Just run Turbotax and they tell you. His tax brackets base on lots of things. I have done my taxes for nearly 40 years, I have never got audited, even before using Turbotax. In fact, I caught one of errors regarding rental properties.
Also, I suggest if you don't like my posts, don't read it. Simple. My sister is a CPA and owns her tax business, so that's where I get a lot of my information.
Last edited by NewbieHere; 02-11-2016 at 11:25 PM..
So, telling the truth is not acceptable. The penalty was calculated by the IRS, they sent me the bill for $70, so let's not assume anything.
OK, fair enough, they gave you a break though. They have the discretion both to do that and set-up payment plans, for instance.
There is no way that a $7k underpayment that happened evenly over the course of an entire year works out to a $70 penalty using the rules.
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Originally Posted by NewbieHere
Also, I suggest if you don't like my posts, don't read it. Simple.
Why would I do that? I enjoy your posts immensely.
Quote:
Originally Posted by NewbieHere
My sister is a CPA and owns her tax business, so that's where I get a lot of my information.
Yeah and you discussed the exact scenario where someone makes a large capital gain in the first quarter never needs to pay estimated taxes on it under any circumstance which is what you are advising.
The correct answer is "it depends." You are adamant that it never matters.
The OP wanted to know the rules and it was given to him. All you could provide was hearsay. Playing the "sister is a CPA'" card doesn't count. Anyone can say they are anything or that they got information from anyone. I could be a junior high school student or a PhD Accounting professor, CPA, CMA and nothing matters except reputable cites and facts.
I never said you weren't telling the truth. If you heard something and reported it or you did something and didn't get caught and said so, that's the truth. It doesn't mean what you heard was the truth or what you did will never get someone in trouble. Saying an underpayment of $7k will only cost someone $70 is a half truth. It conveniently leaves out the fact that you got a break.
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