Discussion:Estimated Tax - Loophole??

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Chautauqua (Talk | contribs)
(If you will be s)
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Warren (Talk | contribs)
(I'd check whethe)
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{{ForumReplyPost|UserID=Chautauqua|Date=21 June 2006|Text=If you will be subject to AMT, consider not paying any state tax in 2006, whether withholding or estimates, even if penalties result. Perhaps even real estate taxes.}} {{ForumReplyPost|UserID=Chautauqua|Date=21 June 2006|Text=If you will be subject to AMT, consider not paying any state tax in 2006, whether withholding or estimates, even if penalties result. Perhaps even real estate taxes.}}
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 +{{ForumReplyPost|UserID=Warren|Date=21 June 2006|Text=I'd check whether or not it will benefit you before I rushed to pay the state estimate in 2006 for the deduction. Frequently Alternative Minimum Tax (AMT) rears its ugly head when that happens and you lose much of the benefit of the deduction. They've raised the AMT deduction some this year so it is less likely to be a problem but I would still do the calculation before I paid the state estimate in December 2006.}}

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Discussion Forum Index --> Tax Questions --> Estimated Tax - Loophole??

Fredcampo (talk|edits) said:

14 June 2006
My 2006 tax liability will be significantly more than prior years because of a very large LT cap gain from a one time stock sale. I read Pub 505 and cannot believe that I can pay the total tax libility next April, without having to pay an estimated tax and/or penalty. This is based on the rule that says your 2006 withholdings must cover the smaller of 90% of my 2006 tax liability (NO) or 100% of my 2005 tax liability (YES). The facts:

Adj Gross in 2005 (Line 37) = $115,000............... Total tax in 2005 (Line 63) = $9,100 ................

Estimated AGI for 2006 = $735,000(One-time cap gain sale on 6/1/06).......... Estimated Tax Liability for 2006= $120,000(Cap gain sale on 6/1/06 is all 15% long term)........ Estimated 2006 withholdings = $10,000

NOTE: Estimated 2006 Withholdings currently projected to be $8,400 but I will change withholdings at work next week so that additional withholding will result in total year end withholdings of approx $10,000 ($133 additional for next 12 pays = $1,600). Based on Pub 505 (Chapter 2), I will not have to make extimated payments (nor pay interest or penalties) because my 2006 withholdings ($10,000) will be more than 2005 tax liability ($9,100). IS THIS POSSIBLE? IF SO, I CAN LEAVE THE $110,000 TAX LIABILITY IN AN 8 MONTH CD UNTIL NEXT APRIL, EARN INTEREST, AND PAY NOTHING ADDITIONAL TO IRS, DESPITE OWING THEM $110,000). POSSIBLE??? Please advise. Thanks.

JR1 (talk|edits) said:

14 June 2006
Yes, Fred, it's true. Cover the prior year liability, generally, and you're ok.

Sandysea (talk|edits) said:

14 June 2006
Isn't it lovely? hehe

Lark (talk|edits) said:

14 June 2006
Check your state estimated tax rules also.

Jdugancpa (talk|edits) said:

14 June 2006
For the benefit of others reading this post, taxpayers with AGI over $150k ($75k for married, filing separately) must pay 110% of prior year tax to be protected from underpayment penalty.

Mastill (talk|edits) said:

14 June 2006
you might want to go ahead and pay state tax estimate by end of year(december 31) so you can deduct on 2006 sch. A

Taxworld2 (talk|edits) said:

14 June 2006
The tricky senario is not overpaying when income is decreasing in the subsequent year...

DZCPA (talk|edits) said:

14 June 2006
As you pay your increased state payments, watch out for ALT MIN problems. Sell all of your stocks which will generate a loss before 12/31 to reduce taxable gain.

Chautauqua (talk|edits) said:

21 June 2006
If you will be subject to AMT, consider not paying any state tax in 2006, whether withholding or estimates, even if penalties result. Perhaps even real estate taxes.

Warren (talk|edits) said:

21 June 2006
I'd check whether or not it will benefit you before I rushed to pay the state estimate in 2006 for the deduction. Frequently Alternative Minimum Tax (AMT) rears its ugly head when that happens and you lose much of the benefit of the deduction. They've raised the AMT deduction some this year so it is less likely to be a problem but I would still do the calculation before I paid the state estimate in December 2006.
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