Tax Question
 

What triggers having to pay estimated State and/or Federal income taxes?

Did some electric utility work in 2013 doing storm recovery. Was paid as an independent contractor so I held back $1K for tax that I knew would be due on my 2013 return(no deductions were withheld). Also in 2013 I withdrew some $$ from my 401K plan. I had 20% withheld on the taxable portion. My tax guy said I should have had closer to 25% withheld.

Anywho, I now have to pony up the tax due on 4/15/14......that I understand. But he also says I have to pay IRS estimated quarterly taxes during this year...specifically 4/15/14, 6/15/14, 9/15/14 and lastly 1/15/15..OK .

However I will not be doing any storm restoration work in 2014 and if I do another 401K withdrawal I'll have the administrator withhold 25%. Seems like I will be overpaying my taxes this year due to the estimated payments and I'll probably be due a refund on my 2014 return.

What exactly set off the estimated quarterly taxes? Was it the amount due or what?
Are the estimated taxes a form of "late penalty" since there was no payment made?

Any insight would be appreciated.

They want their money quick so the independent contractor job set this off.The 401K did not set this off. Years ago I would get these but just ignored them as I knew I would be good at the end of the year. However that was 15 years ago.

Basically, each quarter you must have paid taxes on what was made in that quarter.
If you made an amount that was greater than what you had paid taxes for, like your utility work, the government wants a payment for that income.

If not paid in that quarter it will be penalized.

There used to be a section where if your overall taxes paid for the year was greater than the extra income, there was no penalty.

Like if you had regular paycheck and had extra withheld each check.
That extra would offset the extra income for that quarter.

But, a tax person should know the laws now.

(I'm not a tax person or play one on TV :D)

:)

You need to have 90% of your tax paid in through withholding or estimated tax payments during the year or the IRS will hit you with a late payment penalty, which is essentially interest on the underpayment.

Since in 2014 you will not have the income as an independent contractor and will up the withholding on any 401k distributions, you should have 90% of you tax paid in through withholding and the estimated taxes payments will not be necessary.

Surprising your tax guy didn’t ask what your situation would be in 2014, it doesn’t make sense to pay estimated payments just to have it refunded when you prepare your tax return next year.

OK, guys........I appreciate your comments and the insight regarding the estimated taxes. I have a call in to my tax preparer but will not hear back from him until next week.

thks again, Jerry

your tax preparer generated "protective" estimates for you based upon your 2013 tax return. however, as noted above, these are "estimates" and if you believe you won't need to pay them because you're other withholdings will be sufficient, then you don't have to pay them. the underpayment penalty is nothing more than interest, so if you should have made estimates the underpayment penalty is likely to be relatively small.

good luck

tdavidl:

Thanks so much for your comments. The protective estimates make sense, but my situation wll be different in 2014. I see that you are a CPA so I know your comments are correct and much appreciated.

I may go ahead and pay one of the four estimates as my wife has begun receiving monthly SS benefits and forgot to have them w/hold taxes on that. Just realized that last month.
The way I read the fine print on the back of the SSA W-2, monthly benefits generally are not taxable if there is no other income, but she is also receiving a retirement from her former employer, so I guess that makes her SS benefits taxable. Would you agree?

Thanks much

Jerry

if you file jointly the amount of her SS that will be taxable will be driven by your combined income, not just hers....the portion of SS that's taxable is based upon your adjusted gross income (modified of course ;-) )....there are worksheets in the 1040 instructions to help you determine this.... www.irs.gov & search for 1040 & you'll see a hit for instructions and find the section on calculating taxable SS.....good luck