Underpayment Penalty


S

sftydvr

What is the proper method of avoiding an under payment of
taxes penalty for a situation where the sale of a large
asset occurred in the last part of the year and it created a
large capital gain? This is for a client, which normally
covers the obligations through salary withholding in
paychecks. Should a Form 2210 be filed? Should one request
a wavier (1a)? Should one mark use the annualized income
installment method (1b)? Will the IRS recognize the late in
year unplanned sale of an asset an unusual circumstance?

Thanks,

BC
 
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P

Phil Marti

(e-mail address removed) (sftydvr)
writes:
What is the proper method of avoiding an under payment of
taxes penalty for a situation where the sale of a large
asset occurred in the last part of the year and it created a
large capital gain? This is for a client, which normally
covers the obligations through salary withholding in
paychecks. Should a Form 2210 be filed? Should one request
a wavier (1a)? Should one mark use the annualized income
installment method (1b)?
Annualized income. The 2210 is required.

Phil Marti
Topeka, KS
 
A

Arthur Kamlet

sftydvr said:
What is the proper method of avoiding an under payment of
taxes penalty for a situation where the sale of a large
asset occurred in the last part of the year and it created a
large capital gain? This is for a client, which normally
covers the obligations through salary withholding in
paychecks. Should a Form 2210 be filed? Should one request
a wavier (1a)? Should one mark use the annualized income
installment method (1b)? Will the IRS recognize the late in
year unplanned sale of an asset an unusual circumstance?
File Form 2210 Schedule AI with your tax return, and if you
need to pay estimated tax, pay that tax on time using Form
1040ES.

Form 2210 Sch AI can be nasty, but there's certainly
software out there that will ease the pain. Or seek local
professional assistance.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
A

A.G. Kalman

What is the proper method of avoiding an under payment of
taxes penalty for a situation where the sale of a large
asset occurred in the last part of the year and it created a
large capital gain? This is for a client, which normally
covers the obligations through salary withholding in
paychecks. Should a Form 2210 be filed? Should one request
a wavier (1a)? Should one mark use the annualized income
installment method (1b)? Will the IRS recognize the late in
year unplanned sale of an asset an unusual circumstance?
It's quite possible that a safe harbor exists for this
client. If the amount of withholding is at least equal to
2002 taxes then no estimated tax payment is required.
Assuming no safe harbor, just send the 4Q estimated tax
payment by 1/15/04. I've never used the 2210 when the
trigger was a 4Q capital gain identified on the Schedule D
and the 4Q payment was timely made.

Alan
http://taxtopics.net
 
H

Herb Smith

What is the proper method of avoiding an under payment of
taxes penalty for a situation where the sale of a large
asset occurred in the last part of the year and it created a
large capital gain? This is for a client, which normally
covers the obligations through salary withholding in
paychecks. Should a Form 2210 be filed? Should one request
a wavier (1a)? Should one mark use the annualized income
installment method (1b)? Will the IRS recognize the late in
year unplanned sale of an asset an unusual circumstance?
File the 2210, with the 2210AI annualized attachment. This
is not an easy form to fill out, so read the instructions
carefully.
 
B

Barry Gold

sftydvr said:
What is the proper method of avoiding an under payment of
taxes penalty for a situation where the sale of a large
asset occurred in the last part of the year and it created a
large capital gain? This is for a client, which normally
covers the obligations through salary withholding in
paychecks. Should a Form 2210 be filed? Should one request
a wavier (1a)? Should one mark use the annualized income
installment method (1b)? Will the IRS recognize the late in
year unplanned sale of an asset an unusual circumstance?
I'm not a tax professional nor an attorney, but I would
think that if you realize a large capital gain in the last
part of the year, you should file 1040-ES on January 15 of
the following year. There should be no penalty, because
your estimated taxes in each quarter are approximately what
you need to make your taxes come out right for the year,
based on your income through the end of that quarter.

(I should probably make that "quarter", because est. taxes
are due April 15, June 15, Sept. 15, and Jan. 15, which are
spaced 2-3-3-4 months apart.)

You could do the whole calculation to estimate how much tax
is due, or you could just figure that your witholding takes
care of your other taxes, and pay 20% of your capital gain
as estimated taxes.
 
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A

A.G. Kalman

A.G. Kalman said:
(e-mail address removed) (sftydvr) wrote:
It's quite possible that a safe harbor exists for this
client. If the amount of withholding is at least equal to
2002 taxes then no estimated tax payment is required.
Assuming no safe harbor, just send the 4Q estimated tax
payment by 1/15/04. I've never used the 2210 when the
trigger was a 4Q capital gain identified on the Schedule D
and the 4Q payment was timely made.
I should have added that this (no 2210) assumed that the
other income for the year had adequate withholding.

Alan
http://taxtopics.net
 

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