How Much to Pay
Tax planning and compliance for investors
General Taxation
Retirement
Taxation of Investments
Equity Compensation
Kids/College
How Much to Pay
Determining how much estimated tax
In many cases, the best way to determine the amount of estimated tax to
pay is the easiest: use the prior year safe harbor. But sometimes this
approach means overpaying. The best choice then may be to work out an
estimate of the current year's tax liability.
Prior year safe harbor
The same "prior year safe harbor" you use to determine whether you
have to pay estimated tax (see ) can
be used to determine how much you have to pay.
Your total tax for 2008 was $37,000. Your withholding and credits
for 2009 will be $21,000, so you can't rely on the prior year
safe harbor to avoid paying estimated tax. But you can use the
prior year safe harbor to determine how much to pay: $16,000, or
$4,000 per quarter.
The majority of people who pay estimated tax rely on the prior year safe
harbor. It has some major advantages over actually estimating the current
year's tax:
It's easy. You don't have to track down a lot of numbers or
do any complicated calculations if you use this method. All you need
to know is the total tax from the prior year and the amount of
withholding and other credits you'll have this year.
No guesswork. Perhaps it's an exaggeration to say there's
no guesswork in using this method, because your withholding or credits
could turn out differently than you expect. But when you base your
estimated tax on the prior year's tax, instead of 90% of the current
year's tax, you're starting from a much firmer number.
Some people wonder whether they're permitted to use the prior year safe
harbor even if they know they're going to owe more tax for the
current year. The answer is yes. If you qualify, the prior year safe harbor
is a safe way to avoid the penalty for underpayment or estimated tax, no
matter how large the underpayment is or how obvious it was that you would
end up having an underpayment.
The prior year safe harbor requires a payment
of 110% of the prior year's tax (not just 100% of the prior
year's tax) if your adjusted gross income for the prior year was
over $150,000 ($75,000 if you are married and filed separately).
There are two situations where you may choose not to use the
prior year safe harbor.
Current year tax will be lower
If you have good reason to believe that 90% of your current year's tax
will be significantly lower than your prior year's tax, you'll pay a lot
more than necessary if you rely on the prior year safe harbor.
Example: Last year you had unusually
high income because you exercised nonqualified stock options.
You expect your income to be $80,000 lower this year. If you use
the prior year safe harbor for this year, you'll pay $30,000
more than necessary, so it makes sense to base your payments on
90% of the current year estimated tax.
You shouldn't worry too much about the possibility that the current year
tax will be
smaller. All that means is that you'll get a small refund when you file your
tax return. But you wouldn't want to overpay by $30,000 because you'll lose
the opportunity to earn interest on that amount while you're waiting for
your refund.
Current year tax will be higher
There's nothing necessarily wrong with using the prior year safe harbor
when the current year tax will be higher. As discussed above, you can use
this rule even if you're dead certain that your current year's tax will be a
lot higher than the prior year's tax.
But some people aren't comfortable with the notion that
they'll owe a huge tax bill in April. And if anything happens to
the money before April 15, and you're not able to make the
payment then, you're in a world of hurt. Some people choose to
so they know they won't get into that situation.
Estimating your tax
Form 1040-ES (the form used to pay estimated tax) comes with a worksheet
you can use to estimate how much tax you'll owe for the current year.
There's certainly nothing wrong with using this worksheet — but most people
don't. The reason is that the worksheet takes you through more detail than
may be necessary, but still leaves you with nothing better than an educated
guess about your tax liability. The usual way to estimate taxes is a
somewhat simplified method:
Look at each number on the prior year's tax return and ask
yourself if this year's number is likely to be significantly
different. Ignore differences in wages because there will be a
corresponding difference in withholding. Use rounded numbers and don't
worry about minor changes.
Add up all the differences to see how much larger or smaller your
taxable income will be for the current year.
Apply the tax rates to see how much difference this will make in
your income tax. (If the difference results from a capital gain, apply
the capital gain tax rates.) Round the number up or simply tack on an
added amount if you want to increase your comfort level about avoiding
a penalty.
Many people using this method don't bother looking up changes in tax
rates, standard deduction and personal exemptions that result from inflation
adjustments. These changes will decrease your tax slightly, so that's one
way of providing a cushion of extra payments.
Suppose you estimated your current year's taxable income exactly
right, but used the tax rate schedules for last year to estimate
the tax. You would get a refund, because the inflation
adjustments for the current year result in a lower tax.
If you want to use the current numbers, they are available in
In some cases it makes sense to take into account changes in
the law other than inflation adjustments that can make a
significant difference in your tax liability. Tax changes for
each year are highlighted in .
The next step
Once you've determined how much you need to pay, you should consider
whether to use estimated tax payments or an increase in withholding to cover
this amount. Before we turn to that question, we'll look at the possibility
of making voluntary payments in excess of the minimum amount required.
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sell stocks, mutual funds and stock options.当前位置： >题目详情
During the year, Scott charged $4,000 on his credit card for his dependent son's medical expenses.
Payment to the credit card company had not been made by the time Scott filed his income tax return in the following year.
In addition, in the current year, Scott paid a physician $2,800 for the medical expenses of his wife, who died in the prior year.
Disregarding the adjusted gross income percentage threshold, what amount could Scott claim in his current year income tax return for medical expenses?
正确答案：A
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