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Midyear tax tip #4:
Evaluate your estimated tax situation

June 24, 2010

The tax clock is ticking, but well-prepared taxpayers won't take a licking from the IRS if they follow our fourth entry into the inaugural Midyear
Tax Moves
feature. (Thanks to Timex and John Cameron Swayze for the inspirational turn of phrase and the memories!)

Today's timely tax tip comes from Robert D Flach, the Internet's  Wandering Tax Pro, who reminds us that Uncle Sam wants estimated tax payments when we expect to owe more than $1,000 when we file our 1040s.

The second 1040ES voucher of 2010 was due just last week, but it's never too late to assess your estimated tax situation.

Here's what RDF suggests:

The IRS assesses penalties for underpayment of estimated tax based on income received in 4 not-exactly "quarterly" periods. The amount of estimated tax liability is based on net taxable income (after allowable deductions) received for the periods ending March 31st, May 31st, August 31st and December 31st.

You should review your income for the first 5 months of the year.  Did you make a big score – from the sale or investments or vacation property, excessive premature withdrawal from a pension plan or account, big gambling or prize winning – on which you were underwithheld or had no federal or state tax withheld?  You may want to make a federal and/or state estimated tax payment to cover the additional amount that will be due on the score.

If you are charged a penalty for underpayment of estimated tax your tax professional can attempt to reduce or eliminate it by "annualizing" your income by the 4 periods mentioned above.

At this point you have missed the June 15th 2nd Quarter payment date.  But it is not too late to send in an estimated tax payment.  The penalty is calculated on a daily basis, so sending a check by June 30th is better than waiting until September 15th, which is the 3rd Quarter payment date.

You should do the same thing in the beginning of September.

Good advice, sir. So good, it bears repeating courtesy tax Twitter pal @Eligabiff: 


Eligabiff-twitter-tax-tip-062310-1a

"Of course," adds Eligabiff, "most of my clients that were hit by tax bills because of capital gains a few years ago now have a huge loss carryforward. … I also encourage self employed clients to do a review of income/expenses in the fall to adjust estimated taxes as well."

More midyear tax tips on their
way:
Thanks
to both RDF, who's on Twitter @rdftaxpro, and @Eligabiff of Personal Financial Services for the estimated taxes contribution to Midyear Tax Moves.

If you have a tax move
we can make now to help reduce our upcoming 2010 tax bill, we'd love to hear
from you. I'll be posting the tips, one a day until we run out.

If you're succinct, I'll take your tip via
Twitter @taxtweet. Got a
bit more to say, post it on the ol' blog's Facebook page.

And if you want a chance to win a New Yorker
desk diary, check out the details here (the entry deadline has been
extended to June 27).

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posts:

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • Elizabeth Ruh (Eligabiff)

    Thanks for the mention! I actually prepare taxes for Jackson Hewitt Tax Service, as an Enrolled Agent and General Manager.
    Personal Financial Services is a Company I am a Partner of where we offer mostly Guardianship Services and bill paying assistance. PFS does not prepare tax returns.

  • E – thanks for the clarification; I was going by the link from your Twitter page. – K

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