Frequently Asked Q & A
General Questions:
If you have a general question of a generic nature send an e-mail to GeneralQ@BusinessAndTaxPlanning.con
Q. I am going to receive a large sum of unexpected income. Should i increase my estimated tax payments or have additional taxes withheld from my pay check?
A. If your Adjusted Gross Income, AGI, (look at line #37 on your Form 1040) is greater than $150K for married / $75K for singles; and if you have your taxes withheld by your employer or a W-2, and your withholdings will be greater than last years total tax liability (look at line #63) then you don't need to pay anything additional now. Just be prepared to pay, next April 15th, 10%-39% depending on the tax percentage of your windfall.
If you are self employed or for other reasons make quarterly estimated tax payments, then make sure that all of your 1040-ES payments are paid timely and for the correct amount, ie: 1/4 of last years tax liability (line #63). This is called a "protective estimate" or th have paid in 100% of last years taxes.
If your AGI is greater that $150K/$75K, then are under a different set of rules. We need to talk! Briefly, you should have 120% paid in of last years taxes. It doesn't make sense to me either. Go figure.