quick tax help

[Taylor Caby]

I'm not sure I understood my CPA correctly when he answered this question the first time and I'm having a hard time getting ahold of him.

I am filing for an extension for 2006 taxes. I have had a fairly large amount of income in 2006 and have been up to date on 110% of my taxes for 2005 for my estimated payments in 2006. I will certainly owe more though once we figure out exactly what that is.

-Do I need to send in what i "expect" to owe in addition to my 110% of 2005's estimated payments (which i already paid) tomorrow? How do i estimate this number and do i need to send it in tomorrow?

-I know i need to pay my first qtr 2007 estimate. I am sending that in tomorrow morning, but how do I estimate that? I don't have my total 2006 income calculated yet due to the extension. Do I just make a guess?

Thanks,
tc

[stoxtrader]

I can't answer your question but you do have until the 17th this year as tomorrow is some obscure holiday that gives everyone an additional day.

[Poker CPA]

Taylor here's the trick. Do not pay 2007 estimated taxes under any circumstances. Estimate your unfunded 2006 liability, then add your estimated 2007 1st Qtr payment to it. This amount goes with the extension. Assuming your are correct on your 2006 unfunded liability, your filed 2006 1040 will show a refund equal to your 2007 1st qtr estimate. You then elect to have the 2006 refund applied to your 2007 taxes. This saves on potential underpayment penalties on the 2006 extension and the cost, if any, is the interest charge for underpaying your 2007 taxes. Interest vs penalites is HUGE.

Excellent question. Any preparer filing an extension and making clients pay 2007 estimated taxes is a fool. He is just not thinking. And if you're in the "Neteller" situation
this is just stupid.

[Taylor Caby]

Poker CPA,
Thanks for that advice. I tried sending you this in a PM but your mailbox is full.

i'm not exactly sure what you meant by your post.

I should hold off on my estimated 2007 taxes, but pay what I think i would owe above and beyond my 4 2006 estimated payments?

So let's, for example, say I paid 200k total in estimated payments for 2006 and I think my total liability will be 300k, I should send the gov't a check for 100k more? Should I send this to the same place I've been sending my estimated payments, and what should I label this payment when I send it in?

Thank you very much,
tc

[Poker CPA]

Sorry about the mailbox.

Your 4 2006 estimated payments $ 200,000
Your est of 2006 April 17th liability 100,000

Total 2006 300,000

Your 2007 1st Qt est payment (safe Harbor) 82,250

Your 2006 extension payment is 182,250
Your 2007 1st est payment (due April 17th) is ZERO

So you should send a check for 182,250 with the extension, if your actual total liability comes in at $301,000, then you will have a refund of $81,250. You than apply this refund to your 2007 taxes. Send it to your local 1040 IRS center (Ogden, Fresno or whereever), not the Est tax center (which is Cinn OH I think). This protects you against underpayment penalties on the 2006 extension, but maybe cause a slight interest change in 2007. And thats a big MAYBE. Good Luck and you need Form 4868, its simple.

[Poker CPA]

Mailbox is clear

[calle mayor]

[ QUOTE ]
Sorry about the mailbox.

Your 4 2006 estimated payments $ 200,000
Your est of 2006 April 17th liability 100,000

Total 2006 300,000

Your 2007 1st Qt est payment (safe Harbor) 82,250

Your 2006 extension payment is 182,250
Your 2007 1st est payment (due April 17th) is ZERO

So you should send a check for 182,250 with the extension, if your actual total liability comes in at $301,000, then you will have a refund of $81,250. You than apply this refund to your 2007 taxes. Send it to your local 1040 IRS center (Ogden, Fresno or whereever), not the Est tax center (which is Cinn OH I think). This protects you against underpayment penalties on the 2006 extension, but maybe cause a slight interest change in 2007. And thats a big MAYBE. Good Luck and you need Form 4868, its simple.

[/ QUOTE ]

PokerCPA,
Usually this works nicely. But...

Taxpayer makes 2nd & 3rd Qtr est tax payments of $82,250 each

Total est taxes paid for 2007 - $164,500

Tax on the 2006 return when filed - $140,000 instead of expected $300,000

Taxpayer wants the $242,250 refund (2006 est tax pmts $200,000 + 2006 ext pmt $182,250 - 2006 actual tax $140,000) in cash thinking that his 2007 estimated tax payments already cover him for 2007, so there's no reason not to get some cash back

Resulting 2007 1st qtr est tax paid in - $0

Penalty for underpayment of est tax = roughly $140,000 x 110% x 8% x 2mo/12mo = approx $2,000

This is nothing to your client, but if he notices and asks you what happened, you look like a pile of douchebags.

And yes, many wealthy clients have no idea what large deductions they are entitled to. So the drop in anticipated tax from $300,000 to $140,000 is more common than it would seem.

Sorry, this must be the most unimportant post in relation to poker, but the math is worth noting.

[Poker CPA]

calle mayor

Didn't notice this response, BUT

how can your accountant be $160,000 off in his expected tax liability on April 15th. Its 3 1/2 months after year end. My post was based on the 300,000 being fairly accurate. This is not common at all, and your accountant should be fired for allowing the IRS to have $242,250 of your money interest free. At 5%, your cost is about $7,000, if you wait until October 15th to file. Plus overpaying the 2nd and 3rd Qtr 2007 est payments.

And the $2,000 calculation is way off, more like $500.

Fire his azz.

[Poker CPA]

The 1st Qtr 2007 estimate is 38,500, not 140,000 times 110% (or 154,000).