Formula for calculating estimated taxes


M

Mahesh

Folks,

I recall when I used turbo tax, they determined estimated taxes for
me. Anyone know how they do this and how accurate is this?

For people whose income is lumpy, the only way to get an accurate
figure for the estimated taxes and avoiding penalties is to use 110%
of last years tax bill (assuming income is greater than 150000) and
split that over 4 periods.

e.g. 2010 Total tax = $30,000

estimated taxes for each period of 2011 = 30000*110%=$33,000/4

However I know that Turbo Tax does not provide a figure of $8,250 for
each 1040 ES.

So how much can I rely on the number Turbo Tax generates? What is the
basis for that? what is the easiest way of calculating estimated taxes
and avoiding penalties? Thanks,
 
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M

Mark Bole

Folks,

I recall when I used turbo tax, they determined estimated taxes for
me. Anyone know how they do this and how accurate is this?

For people whose income is lumpy, the only way to get an accurate
figure for the estimated taxes and avoiding penalties is to use 110%
of last years tax bill (assuming income is greater than 150000) and
split that over 4 periods.

e.g. 2010 Total tax = $30,000

estimated taxes for each period of 2011 = 30000*110%=$33,000/4

However I know that Turbo Tax does not provide a figure of $8,250 for
each 1040 ES.

So how much can I rely on the number Turbo Tax generates? What is the
basis for that? what is the easiest way of calculating estimated taxes
and avoiding penalties? Thanks,
You are being quite coy about what number TurboTax actually does
provide. I can't find a Usenet group specifically for Turbotax, but
there is probably a forum out there more specifically related to that
product, or you could always contact the vendor directly.

One of the vendor's closely-related family of tax software products does
correctly calculate $8,250, so it seems especially odd that you would
recall a different result.

-Mark B.
 
B

Bob Sandler

I recall when I used turbo tax, they determined estimated taxes for
me. Anyone know how they do this and how accurate is this?

For people whose income is lumpy, the only way to get an accurate
figure for the estimated taxes and avoiding penalties is to use 110%
of last years tax bill (assuming income is greater than 150000) and
split that over 4 periods.

e.g. 2010 Total tax = $30,000

estimated taxes for each period of 2011 = 30000*110%=$33,000/4

However I know that Turbo Tax does not provide a figure of $8,250 for
each 1040 ES.

So how much can I rely on the number Turbo Tax generates? What is the
basis for that? what is the easiest way of calculating estimated taxes
and avoiding penalties? Thanks,
When you use TurboTax to calculate estimated taxes, it asks
you which of several methods you want it to use. One of the
choices is 110% of the previous year's tax. If you have not
yet made any payments, it divides the total by 4.
 
R

removeps-groups

I recall when I used turbo tax, they determined estimated taxes for
me. Anyone know how they do this and how accurate is this?
For people whose income is lumpy, the only way to get an accurate
figure for the estimated taxes and avoiding penalties is to use 110%
of last years tax bill (assuming income is greater than 150000) and
split that over 4 periods.
e.g. 2010 Total tax = $30,000
estimated taxes for each period of 2011 = 30000*110%=$33,000/4
That's correct if you want to take advantage of prior year safe
harbor. If you live in California and your AGI is over $1,000,000
then you cannot use prior year safe harbor for your state income tax.

There is also current year safe harbor where you must pay 90% of this
year's income, in equal installments. But to use this method you must
estimate your income for this entire year.

And you can also compute a tax return after each quarter based on
income earned for that quarter, and calculate the exact tax for that
quarter. The detail is you annaulize your income (for example the
first quarter whch is 1/1 to 3/31 multiply all income and deductions
for that quarter by 4). Then calculate the tax, which might be tough
as the 2011 tax forms aren't even out. The first quarter tax is this
total tax divided by 4 times 90%, or in other words 22.5% of the total
tax. But in California, the first quarter installment is 27.5% of the
total tax, the second quarter installment is 36% of the total tax,
etc, http://www.ftb.ca.gov/individuals/faq/ivr/208.shtml.


However I know that Turbo Tax does not provide a figure of $8,250 for
each 1040 ES.
I don't know about how Turbo Tax calculates it.
So how much can I rely on the number Turbo Tax generates? What is the
basis for that? what is the easiest way of calculating estimated taxes
and avoiding penalties? Thanks,
Easiest way is to use a tax professional.
 
I

ira smilovitz

Folks,

I recall when I used turbo tax, they determined estimated taxes for
me. Anyone know how they do this and how accurate is this?

For people whose income is lumpy, the only way to get an accurate
figure for the estimated taxes and avoiding penalties is to use 110%
of last years tax bill (assuming income is greater than 150000) and
split that over 4 periods.

e.g. 2010 Total tax = $30,000

estimated taxes for each period of 2011 = 30000*110%=$33,000/4

However I know that Turbo Tax does not provide a figure of $8,250 for
each 1040 ES.

So how much can I rely on the number Turbo Tax generates? What is the
basis for that? what is the easiest way of calculating estimated taxes
and avoiding penalties? Thanks,
TurboTax provides worksheets that show which safe harbor provision it used and how the calculation was done. You also have the ability to choose a different method. All of this is probably "hidden" if you follow their interview process.

Ira Smilovitz
 
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E

ed

TurboTax provides worksheets that show which safe harbor provision it used and how the calculation was done. You also have the ability to choose a different method. All of this is probably "hidden" if you follow their interview process.

Ira Smilovitz

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Open your last year's 1040 and find the Total tax on line 60,
however, deduct line 63, 64a, 65, 66, 67, 70 and 71 . Divide this by
4 and multiply by 1.1 and you get the guaranteed no penalty quarterly
installments amounts. You can also use form 2210 and its Schedule
AI to compute the lowest quarterly payments you can make without
incurring a penalty if your income varies throughout the current
year. This is called the Annualized Income method and TT will only
do it for the prior year,but if you use last year's TT you'll
probably get a result not too different from what the current year's
program will eventually produce.

IRS Publication 505 has workheets to manually calculate the AI
iinstallments, however, you can download a"stand-alone" Excel form
2210 calculater from the web that does use current rates and does all
the calculating for you. The AI method would only be useful to
calculate installments if your income is decreasing or you have large
Deductions or carryover losses in the first quarters..
 
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