Conference nyoss1::market_investing

    I certainly hope not.  I've been using 10 for years.
    
    L.

    The IRS is _notified_, but an _audit_ is not necessarliy triggered. 
    The purpose of the notification regulation is so the IRS can assure
    themselves you are not trying to beat the withholding system.
    
    I used to have 22 w/h allowances (children + mtge. + MA taxes), and
    only once did they ask me why.
    
    For the past two years, I have had 98 w/h allowances (foreign
    assignment); and I never heard a peep from the IRS.

I believe I'm at 12 (there are just two of us), and we've never been audited.

    Do you have to pay estimated tax quarterly?  I think this is the case
    if they have not withheld enough during the year.

I don't think they audit based on W4's.  They wait till you file your taxes.
I'm at 12 withholding exemptions because when I had fewer I would get a huge
refund together with a note suggesting that I have less money withheld.
If you're underwithheld, they get you when you file -- you end up paying
a penalty.  If your tax return is suspicious (e.g., a very large number of
dependents with names like "Fido" and "Puff"), you may get audited.  If
you have unusual circumstances, it's worth attaching a note to explain them.

There are various ways to avoid a penalty -- for instance, if your
withholding + estimated taxes exceeds your last year's tax liability,
there's no penalty (so you can safely be underwithheld the first
year you're working).  You can also play games with estimated taxes.
For instance, if you had a large boost in income at the end of the
year (say you had a big capital gain), you can pay estimated taxes
for just the last quarter, and you can calculate your penalty on
a quarterly basis, which sometimes knocks the penalty down to 0.

    Re .5
    
    Having spent an hour wading through the IRS publication for
    estimated payments, some of the points you make sound 
    reasonable to me.
    
    A safer "algorithm" to check if one needs to pay estimated taxes
    is to make sure that by the deadline date for *each quarter*
    (15th of April, July, October and January), the year-to-date
    withholding reported on the paycheck is at least 25%, 50%,
    75% and 100% respectively, of the total tax liability for 
    the previous year.
    
    If (heaven forbid) you expect to make less money this year than
    last year, the real fun and games begin :-). You then need to
    compute if you can get away with not paying estimated taxes
    based on either of two other rules i.e. (1) at least 90% of
    the estimated current year's tax liability paid through withholding, 
    or (2) no more than $500 total unpaid of the current year's tax 
    liability. There is a third scenario that kicks in for estimated 
    tax payments if one were potentially liable for alternative minimum tax 
    during the current year, at which point it may be wise to throw in 
    the towel and seek the services of a reputable tax accountant.
    
    - Ganesh.
                                                       

I believe you can also avoid estimated tax (and make extra interest) by
being underwithheld for most of the year and then increasing your withholding
towards the end of the year.  Withholding is considered one big pool, even
if you were filling it with a dropper till October and with a fire hose
thereafter.

    Re .7
    
    This does not sound very safe (even if it's based on past
    experience). Of course, chances are you won't be bothered 
    if your total withholding at the end of the year exceeds the 
    "triggering" limits, but according to what I read,
    withholding has to exceed a certain value at the 
    end of each quarter.
    
    I'll see if I can look it up tonight.
    
    Ganesh.
                               

RE: .7 & .8
    
    I understand that .7 is correct.  The IRA does consider that the 
    total of payroll tax deductions were received uniformly over the 
    entire tax year, regardless of the actual dates/amounts.

Re .6

>    A safer "algorithm" to check if one needs to pay estimated taxes
>    is to make sure that by the deadline date for *each quarter*
>    (15th of April, July, October and January)

Actually, it's the 15th of April, *June*, *September*, and January.
If you wait until July and/or October, you can be hit with penalties.

				Andrew

    Re .10
    
    If your income is not "predictable" such as profit/loss from stocks,
    you can (at least I do) send in the "remainder" by January 15th with no
    penalties.  If you have regular income that puts you over the tom (say
    some old 12% 30 year T Bills) and no trading (profits AND losses) going
    on, better do it quarterly as you can's say you couldn't be sure til
    the end of the year.
    
    As an example I could sell some stocks (options John?) as $20K profit
    in January, and do fairly well through August (say another $10K) and
    then have my DoWop Widigits which I invested $50K in go chapter 11 on
    me in October and drop 90% in three days when I was on vacation.  Net
    then would be a loss even though the early predictor was "lotza geld".
    
    But if I get a royalty check for my framiz (non computer) design
    licenses, I had better send in the xx% (unless I adjusted my Digital
    witholding, which I do) April, July, October and January 15 or possibly
    face the consequences.
    
    Bill
    

    Re .10
    
    You're right - .11 and I got the payment dates wrong. I just realized 
    this gives you just two months (instead of three) of witholding 
    towards the second quarter's minimum. 
    
    Re .11
    
    However, I spotted what looks like a major ambiguity in Publication
    505. On the one hand, it says you don't owe tax on any income until
    it is actually realized. On the other hand, it says you will (will,
    not may) be hit with a penalty if you don't pay in at least 22.5%
    (one-quarter of 90%) of the current year's tax by each of the
    due dates, or 25% of last year's taxes.
    
    The more times I read the darn thing, the more I'm convinced 
    I should stick with the safe (although not necessarily optimal) 
    solution of "at least 25% of last year's" by each of the due dates.
    
    Ganesh.

I have not gotten any ratback for estimated tax paid at the end of year if it
capital gains, as long as all of my "predictable" (int+div+salary+whatever)
income was covered by my witholding or was within 10% of my witholding limit.

It only takes til the next check to adjust your witholding (fiddle exemptions,
withold as single if your are married, or withold specific $per week extra).
I find this a lot easier and less "penalizing" than the quarterly stuff anyhow.
Though I'd rather gain the income from using the money longer in some cases.

Also, remember, if the witholding+ quarterly payments covers the previous years
tax paid, there is no penalty if you owe on April 15.

Is there a calculation based on income to figure out how much
they withhold for each allowance you claim?  We want to increase
our allowance, but don't want to have too much taken out.

Thanks
Dave

Dave,

Go see your PSA.  I went (wanted to reduce my refund) and she gave me a chart
with the amount of taxes taken out per week.  If your refund is say $2000,
and you want to get back around $500, then divide the $1500 by 52 weeks, then
look at the chart for the appropriate allowance count.

John Piekos

Hi,

I owed over $800.00 in taxes (federal) this year.  Does anyone know when
the IRS will assess a penalty for not having enough withheld from your
paycheck?  Somehow, the number $500.00 comes to mind.

I think the IRS is overlooking penalties for underwithholding this year
because of certain changes, but what about next year?  Can a person
consistently have less money taken out of their paycheck and just opt to
"pay" up at tax time?  That would be my preference. Or, is there some magic
underwithholding number that triggers a penalty?

Thanks.  I'd like to know before I fill out a W4 form to drop my number of
allowances.  

Diana

I think the new rule is 90% withheld.  That is you have to have 90% of your total
tax liability withheld or get the penalty.

You can fill out a w-4 form as often as you like in a year.  You can estimate
your capital gains, interest, etc. and make the 90% rule in the last month if 
you can do without a paycheck.

mtb

    If your total 1992 withholding is greater than your 1991 total
    tax, you will not be penalized.  If you are penalized, IRS will
    figure out the amount and will bill you.
    
    Wendy 

I thought they got rid of the rule and put in the 90% rule instead?

/mtb

    
    Does anyone know how much the underpayment penalty is, or how they 
    calculate this?
    
    Chuck

    I was reading in the 1040 instructions there were 2 or 3 explantaions
    of penalty. In my case, I paid more in tax in 1992 than in 1991 so no
    "penalty" assessed.

    As long as you are going to go through the calculations to change your
    W4, why not just file estimated payments instead?  
    
    When you have weekly deductions taken out, you lose the money
    immediately.  When you make quarterly estimated payments, you get to
    put the money in the bank each week and earn something more than if you
    had it taken out.
    
    As for the penalty criteria, the guidelines published in the 1040
    instructions are about as clear and concise as Digital's marketing
    message.  
    
    Dave

    Re: penalty ...
    Have 1040 instructions in front of me. Page 27 instructions for line 65
    state :
    "You will now owe any penalty if EITHER of the following apply:
    1. You had no tax liability in 1991 and your 1991 return was for 12
    full months  OR,
    2. The total of lines 54,55,58 on your 1992 return is at least as much
    as your 1991 tax liability AND your 1991 tax return was for 12 months.
    
    There is more info there regarding form 2210 and if you made more than
    $75,000,etc.
    
    In summary, 3 paragraphs on how to avoid the penalty
                2 on how to figure
                2 on lowering your penalty.
    
    Back to my Mass taxes now.
    
    By the way I have to pay also. Anyone have some extra checks I can use?

>.20
>    Does anyone know how much the underpayment penalty is, or how they 
>    calculate this?
>    
>    Chuck

I don't have my exact figures, but we did not withhold as much tax in 1992 as
we paid in 1991, hence we are subject to the underpayment penalty.  And for
other reasons, we owe a sizable amount (over $2K) this year, so we did not meet
the 90% rule.  TaxCut (which I hate), kindly calculates our penalty.  It also
depends on how soon/late you plan to pay your taxes.

	April 15 less 30 days, penalty = $25
	April 15 less 15 days, penalty = $27
	April 15 less  0 days, penalty = $29

We are paying $29...

- Chris

    
    
    Can income (self-employed as consultant) 'earned' in December 1995 be
    realized in 1996, if fee for service delivered in the last two weeks in
    December is billed in January of 1996?  Is this 1995 1099 income or 1996 
    1099 income?
    
    ems
    

    Yes,   Income billed and received in 96 is 96 Income.
    go for it.

>     Yes,   Income billed and received in 96 is 96 Income.
>     go for it.

	And you'll probably want to find an IRS publication to verify
	this as you know how much free advice is worth :-)

    re: .26,.27,  thanks.
    
    ems