Ping: Phil Marti

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Phil, I appreciate the solid advice you pass out in this newsgroup and was
wondering if you could answer another question.



I under withheld in 2002 by $1,800 but equaled my withholding for taxes due
for 2001. This year, I again under withheld by over $20,000 due to large
stock sale. But, I withheld 110% of last year's taxes due. So far, no
penalties.



Brief history: The company I have worked for the last 31 years went public
in 03 and I sold off a large block of stock as part of the IPO. After
9/17/04, some restrictions expire and if I choose to, I can sell off another
large block of stock. If I sell after 9/17 can I make one estimated tax
payment in the last quarter of the year so I'm not subject to a penalty? If
I choose not to sell any this year, then my withholding will cover my taxes
due for 04 and I wouldn't need to estimate.



The IRS has already sent me the 1040 ES forms for the year even though I
haven't filed yet.



Of course this doesn't take into account the possible ramifications of the
tax on capital gains being changed in 2005. If they changed the tax rules
again in 2005, do you think it would be retro back to the first of the year,
or just from that point on?



Thanks,

Joe

 

[Phil Marti]

If I sell after 9/17 can I make one estimated tax
payment in the last quarter of the year so I'm not subject to a penalty? If
I choose not to sell any this year, then my withholding will cover my taxes
due for 04 and I wouldn't need to estimate.

The law allows for an unexpected spike in income during the year. To avoid
penalty you would have to deal with "annualized income," as explained in
Publication 505 and Form 2210. I've never looked at it, but I understand
www.edcosoft.com has software that will guide you through this.

The IRS has already sent me the 1040 ES forms for the year even though I
haven't filed yet.



Of course this doesn't take into account the possible ramifications of the
tax on capital gains being changed in 2005. If they changed the tax rules
again in 2005, do you think it would be retro back to the first of the year,
or just from that point on?

Beats me. I gave up long ago trying to figure out what the Fools on the Hill
might do.

Phil Marti
Topeka, KS