Final Payment for 2009 Estimated Taxes

Thursday December 31, 2009, ended the year for paying your 2009 estimated taxes.  Included with your 2008 income tax returns were instructions for paying your 2009 estimated taxes.  If the estimates are not paid properly, you will face a penalty in the form of interest on the amount underpaid. 

Your final estimated tax payment is due January 15, 2010

The complexity with estimated tax computations is in sending an amount sufficient tax to avoid a penalty but not to overpay.  That's because while the IRS will refund any overpayment when you file your return, it won't pay you interest on it.  Individual estimated tax payments are made in four installments. 

Usually, there is no penalty if the estimated tax payments plus other tax payments, such as wages withholding, equal either 100% of your prior year tax or 90% of your current year tax.  However, if your adjusted gross income for your prior year exceeded $150,000, you must pay either 110% of the prior year tax or 90% of the current year tax.  For married filing separately, the higher payments apply at $75,000.

Estimated tax is not limited to income tax.  In figuring your installments, you must also take into account other taxes such the alternative minimum tax, penalties for early withdrawals from an IRA account or other retirement plans, and self-employment tax, which is the equivalent of social security taxes for the self-employed.

 There is no penalty if the tax underpayment for the year is less than $1,000.  However, once an underpayment exceeds $1,000, the penalty applies to the full amount of the underpayment.

If you receive income unevenly over the course of the year, you may benefit from using the annualized income installment method of paying estimated tax.  We recommend that you contact us in order to calculate this amount.  Under this method, your adjusted gross income, self-employment income, and alternative minimum taxable income at the end of each quarterly tax payment period are projected forward for the entire year.  Estimated tax is paid based on these annualized amounts if the payment is lower than the regular estimated payment.  Any decrease in the amount of an estimated tax payment caused by using the annualized installment method must be added back to the next regular estimated tax payment.

As you can see from this brief overview, figuring out estimated taxes can be rather complex.  Please contact us if you need any assistance computing your estimated tax payments due January 15, 2010.

Sincerely yours,

Patrick J. Rubey

 

309 W Washington #350 | Chicago, IL 60606 | Tel:(312)917-1107 | Email: pjrcpa@ameritech.net