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Quarterly tax question for CPA’s
Posted on 7/14/20 at 8:26 pm
Posted on 7/14/20 at 8:26 pm
Every quarter for seven years I have prepaid my federal and state taxes like a good little soldier. My cpa has always told me if I don’t prepay I will have to pay a penalty. Needless to say, I’m not exactly thrilled to send 40-50k each quarter to the federal/state government right now. Been thinking about throwing the cash in a VTSAX for the remainder of the year and just paying in full next spring. So what exactly is this penalty? A percentage of profits? A set dollar amount? How stiff of a penalty am I looking at? I appreciate any info given.
5
Posted on 7/14/20 at 8:31 pm to ykevin25
quote:
My cpa has always told me if I don’t prepay I will have to pay a penalty.
what did your CPA say when you asked him about the amount of the penalty?
Posted on 7/14/20 at 8:37 pm to cgrand
Haven’t spoken to her since April. I’ll probably give her a call before September payments are due but just wanted to get some other folks opinions on the matter before then.
This post was edited on 7/14/20 at 8:38 pm
Posted on 7/14/20 at 9:21 pm to ykevin25
The irs will calculate what you should have paid in each quarter and charge interest on the amount. So the amount you don’t pay for the first quarter will have higher interest penalties than the final estimated payment because there were more months to accrue interest. The rate is published somewhere on the irs website but it changes every so often based on prevailing interest rates.
Posted on 7/14/20 at 11:26 pm to ykevin25
I owed about $500 penalties and interest for a $16,500 tax liability this year- didn’t make any estimated payments in 2019.
A little risky since the market could lose, but It could definitely work out in your favor, too
A little risky since the market could lose, but It could definitely work out in your favor, too
Posted on 7/14/20 at 11:37 pm to LSUGUMBO
I paid $80 on $14k this year
Posted on 7/15/20 at 7:56 am to ykevin25
quote:
I’m not exactly thrilled to send 40-50k each quarter to the federal/state government right now.
Subtle brag
Posted on 7/15/20 at 10:33 am to ykevin25
The federal rate varies each quarter, for Q1 and Q2 2020 it was 5 percent, but for Q3 it's going to be 3%. You figure out how much you should have paid each quarter, and that's the rate you use for that quarter, from the due date for that quarter payment, until the date it is actually paid. So really it's 4 different penalties.
Louisiana follows the same formula, but the rate is a stupid 12 percent.
So, you just need to consider investment gains vs paying now. Keep in mind those investment gains will be taxed as well.
Louisiana follows the same formula, but the rate is a stupid 12 percent.
So, you just need to consider investment gains vs paying now. Keep in mind those investment gains will be taxed as well.
Posted on 7/15/20 at 9:03 pm to LSUFanHouston
As long as you pay before year end there is no penalty. Am I wrong? By year end I mean 12/31. I pay most of my Federal taxes in Dec every year. Buy La Historical tax credits before 5/15 each year. Withhold 0 LA state tax all year.
Posted on 7/16/20 at 6:13 am to dovehunter
No. There are estimated tax penalties for not paying in timely estimates through out the year.
You get hit with w late payment of tax penalty in addition to the estimated tax penalties mentioned above if your full liability is not paid by April 15th or as the case was this year, July 15th.
You get hit with w late payment of tax penalty in addition to the estimated tax penalties mentioned above if your full liability is not paid by April 15th or as the case was this year, July 15th.
Posted on 7/16/20 at 6:40 am to LSUFanHouston
quote:
LSUFanHouston
Thanks for the info.
Posted on 7/16/20 at 7:03 am to LSUFanHouston
quote:
The federal rate varies each quarter, for Q1 and Q2 2020 it was 5 percent, but for Q3 it's going to be 3%. You figure out how much you should have paid each quarter, and that's the rate you use for that quarter, from the due date for that quarter payment, until the date it is actually paid. So really it's 4 different penalties.
Remember that second "quarter" is really only two months. Skip that quarter and overpay in September for quarters two and three and your interest owed for the missed payment for the quarter running from April 1 until May 31 is smaller than it'll be for any other quarter. We've done that in the past because second quarter falls squarely in the middle of planting season (I farm) and the interest was very small.
This post was edited on 7/16/20 at 7:10 am
Posted on 7/16/20 at 8:49 am to dovehunter
quote:
As long as you pay before year end there is no penalty. Am I wrong? By year end I mean 12/31. I pay most of my Federal taxes in Dec every year.
For federal, there is no penalty if the amount you have to pay over the year (not including withholding) is $1,000 or less. Also, if your actual income isn't earned on a linear basis, especially if you get a lot / most of your income in the 4th quarter, then you might not owe a penalty if you pay it in by 12/31.
Otherwise, there may be a penalty.
quote:
Buy La Historical tax credits before 5/15 each year. Withhold 0 LA state tax all year.
LA credits like those, as long as you buy them before 5/15, are considered a credit, not a payment. You technically don't "owe" any payment, since you had credits. No payment owed, no penalty.
Posted on 7/16/20 at 8:53 am to Enos Burdette
quote:
Remember that second "quarter" is really only two months. Skip that quarter and overpay in September for quarters two and three and your interest owed for the missed payment for the quarter running from April 1 until May 31 is smaller than it'll be for any other quarter.
Yes, and the 4th quarter is 4 months.
quote:
We've done that in the past because second quarter falls squarely in the middle of planting season (I farm) and the interest was very small.
If you are an eligible farmer (2/3rds of your gross income is from farming or fishing) there are special favorable rules. You don't owe any estimates for Q1-Q3. You can use 66.67% of current year tax (instead of 90%) and you can use 100% of prior year tax no matter your income. Finally, if you file and pay your tax return by March 1, you don't have to make any estimates at all.
Posted on 7/16/20 at 11:04 am to LSUFanHouston
quote:
If you are an eligible farmer (2/3rds of your gross income is from farming or fishing) there are special favorable rules. You don't owe any estimates for Q1-Q3. You can use 66.67% of current year tax (instead of 90%) and you can use 100% of prior year tax no matter your income. Finally, if you file and pay your tax return by March 1, you don't have to make any estimates at all.
I've got multiple entities for my main farm, a farm partnership in another operation, and holdings in an S Corp and a multi-member LLC that complicate things.
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