Estimated tax question

[sweetjazz]

Here is my situation. For 2005, I owed x in taxes. I expect to have y withheld in taxes in 2006. The amount x - y is bigger than $1000, so I have to pay estimated taxes. I expect to make significantly more than x this year in taxes. In fact, I will likely hit the AMT and it's going to be a mess to figure out how much I owe. I plan on discussing with a CPA before preparing my taxes next year.

However, for my estimated taxes, when looking at the worksheet, it first has me computing through a bunch of steps an estimate z for the amount of taxes I owe in 2006. I know that z will be much higher than x (the amount I payed last year). Can I just use x, subtract off the amount that will be withheld y, and pay the difference as my estimated tax? I know that I will owe a lot of taxes next year when I pay, but I would rather wait to figure out those taxes and pay them at the end then assume my monthly earnings will keep the same pace and pay a large amount now (when I might end up playing less poker later and so owe a lot less; or I might end up playing more poker and still owe a bunch anyway).

I am not looking to shortchange the IRS. I plan to play by the books and pay what I am supposed to. But it seems like with respect to estimated taxes that it is perfectly acceptable to pay the lower amount from last year's wages for now and wait until next year to pay the rest when my final income numbers are ready. Can anyone confirm that I am interpreting things correctly?

Thanks in advance.

[Holden97]

[ QUOTE ]
Can I just use x, subtract off the amount that will be withheld y, and pay the difference as my estimated tax?

[/ QUOTE ]

Yes, pretty much - the exception is if you are a high income taxpayer. In 2005, a 'higher income' taxpayer had to pay in 110% of the prior year liability, and 2006 is also 110%. Higher income is 2005 AGI of $150K.

So multiply x times 110% if you're a higher income taxpayer.

In any case, if you go this route, make sure that your 2006 withholdings are at least y.