Slight Chance for RainApril 7th, 2012 at 4:12 pm by Kevin Orpurt under Weather, WTHI Blog
Planning around the new estimated tax rules.
The Tax Adviser July 1, 1992 | Morrow, Gregory E.
Beginning in 1992, certain high income individuals are no longer allowed to use the 100% of prior year tax safe harbor for making estimated tax payments. (For a detailed discussion of the new rules, see Luchs, “New Rules for Estimated Tax Payments” (TTA, Apr. 1999., at 203).) However, other opportunities still exist for individuals to defer payments of estimated tax during the year. this web site estimated tax payments
Sec. 6654(g)(1) deems wage withholdings as being paid equally on each installment due date (unless the taxpayer establishes the actual withholding date). Thus, any underpayments of estimated tax in the first, second or third quarters could be covered retroactively through increases in wage withholdings at year-end. (This assumes, of course, that the individual is approximately equally underpaid in each of these quarters.)Although this technique is not as effective a deferral as the 100% safe harbor, an individual subject to the new rules can defer payment of estimated tax on income not subject to withholding (e.g., capital gains, income from passthrough entities, etc. ) by increasing wage withholdings at year-end. go to web site estimated tax payments
Accordingly, individuals who expect to be subject to the new rules in the current year due to the occurrence of a significant taxable transaction can defer estimated tax payments on the transaction by completing it as late as possible in the current year. In most cases economic considerations will determine when a transaction will be completed, however, when a transaction is expected to be completed near the end of a month preceding an installment due date (i.e., May 31 or August 31), the taxpayer may want to consider postponing the transaction [if possible) until after the end of such month. By doing so the taxpayer may be able to meet the annualization exception for the quarter and, thus, defer the payment of estimated tax on the transaction by three or four months.
Thus, with careful planning, the effects of the new estimated tax rules can sometimes be mitigated and/or avoided. But the new rules add considerable complexity to estimated tax payment computations, and the cost/benefit relationship of planning around them has to be considered. Note: As this item went to press, additional changes to the individual estimated tax payment rules are being considered. Practitioners are advised to watch for further developments that could affect 1992 estimated tax payments.
From Gregory E. Morrow, CPA, Pittsburgh. Penn.
Morrow, Gregory E.
Permalink Comments Off