Have a Tax Question? Ask a Tax Expert
Hi and welcome to Just Answer!
So, how can I best prepare for this?
First of all - you need to estimate your overal tax liability.
Then you need to estimate the tax amount paid via withholding from your paychecks and other payments - so you will know estimated amount you should pay.
Be sure that you have that amount to avoid late payments.
Shall I send money to the IRS now, or wait until tax time?
If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for prior year as a starting point. Use your prior year's federal tax return as a guide. You can use the worksheet in Form 1040-ES - http://www.irs.gov/pub/irs-pdf/f1040es.pdf to figure your estimated tax. You will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter. You want to estimate your income as accurately as you can to avoid penalties.
Where on the tax forms do take the exception?You should file Form 5329, Additional Taxes on Qualified Plans (Including IRA's) and other Tax-Favored Accounts - http://www.irs.gov/pub/irs-pdf/f5329.pdf - to claim an exemption.
You will use exemption code on line 2 - use code "09" for IRA distributions made for purchase of a first home, up to $10,000 - see page 3 in instructions - http://www.irs.gov/pub/irs-pdf/i5329.pdf
Let me know if you need any help.
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