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My husband and I file our taxes jointly. He is employed (with

My husband and I file...
My husband and I file our taxes jointly. He is employed (with taxes withheld), and I am self-employed. For tax year 2010, we owed approximately $5000, and so this we I had to pay estimated tax payments. We subsequently purchased a home and were qualified for the first-time homebuyers credit (my husband is military and we were able to take advantage of the extension). We amended our 2010 tax return and received an $8000 refund. In other words, we effectively owed $0 tax for 2010 after we amended.

I paid the first two estimated tax installments, but I am wondering if I have to pay the last two. We do not anticipate that we will owe any tax above what we have already paid (between my husband's withholding and the two estimated tax payments I made) but I am not 100% sure of that. Will we be penalized if we do not pay the remaining two estimated tax payments?
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10/2/2011
Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1,408
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
Verified

Jax Tax : There are two ways to avoid estimated tax penalties.
Jax Tax : First, you pay in the current year 100% of your prior year's tax liability equally 25% by the four estimated tax deadlines.
Jax Tax : Tax liability is not what you owed the previous year, but your tax calculated based on taxable income.
Jax Tax : Line 44 on the 2010 return.
Jax Tax : W2 withholdings for the year are estimated taxes and are considered paid equally throughout the year. Personally paid estimated taxes are considered paid on the date paid.
Jax Tax : The 100% rule increases to 110% at high earnings levels.
JACUSTOMER-7wbznad8- :

So if we do NOT pay 100% of our tax liability for 2010, but we pay some lesser amount, and we owe nothing additional for 2011, we will have to pay a penalty?

Jax Tax : Second, pay in equally 25% each quarter an amount equal to 90% of the current year's tax liability. This is harder as estimating future earnings in harder. You may go the first 8 months at steady income and have a sudden increase in the final 4. Estimated tax payments are not based on when the money is earned. You could make 75% of your profit in the last 2 months bit still have to pay 25% of the 90% each quarter. The IRS does not issue penalties the first year so a person/business can acclimate.
JACUSTOMER-7wbznad8- :

What if you an amount equal to 90% of the current year's tax liability in the first two quarters?

JACUSTOMER-7wbznad8- :

*pay an amount

Jax Tax : You can qualify under either so no, you will not be penalized for.not making 100% of the prior year. That is what the 90% of current is for. The quarterlies are deadlines too. You can pay it all in the first quarter if you wanted.
Jax Tax : The latest you can pay is the quarterly deadlines. Anytime before will work.
JACUSTOMER-7wbznad8- :

I see. Thank you. My last question is, does my husband's tax withholding from his paycheck count towards our estimated tax payments? In other words, if an amount over our tax liability for 2010 has been withheld from his pay for 2011, does this qualify as option number one for avoiding penalty.

Jax Tax : Also, if when you file, you would actually owe less than $1000, no estimated tax payment penalty will be charged.
JACUSTOMER-7wbznad8- :

when you say "owe" does that mean owe additional payment over what has already been withheld?

Jax Tax : If you meet these rules and are not penalized, you could still owe taxes. These must be paid by April 15. An extension is an extension to file not an extension to pay. You will get a late payment penalty of up to 25% for late payment which accrues at 5% per month capping at 25%.
Jax Tax : Yes. That is exactly what I mean by "owe". Good question given the definition of tax liability we are using. Tax liability is line 44. Tax owed is tax owed as you state.
JACUSTOMER-7wbznad8- :

Haha thank you- I happen to be a lawyer so I do know the right questions to ask- but I do not know much about taxes! I just have one final question and then you will have fully provided the answer I am looking for and I can press accept:) When calculating the total "estimated tax" that we have paid for 2011 (for purposes of determining if we have already paid an amount equal to 100% of our total tax liability for 2010), do we include BOTH the withholdings from my husband's pay check AND the estimated tax payments I made in the first two quarters?

Jax Tax : Yes, include both.
JACUSTOMER-7wbznad8- :

Ok, I think we are good then because my husband made a lot more money this year and quite a lot has been withheld. Thank you, XXXXX XXXXX done a great job of answering my questions. Have a good night!

Jax Tax : Little fun fact, you can be penalized for not making es payments if you are a w2 employee not having enough withheld.
Jax Tax : What area do.you practice?
JACUSTOMER-7wbznad8- :

Hmm good to know. Civil litigation mostly. I did take a tax class in law school but I know just enough to get myself in trouble!

JACUSTOMER-7wbznad8- :

Thank you, XXXXX XXXXX fully answered my questions:)

JACUSTOMER-7wbznad8- :

I think we are good for 2011 b/c my husband made significantly more money this year and quite a lot has been withheld.

JACUSTOMER-7wbznad8- :

I was just debating whether to pay the remaining estimated taxes or not. Thanks, XXXXX XXXXX good night!

Jax Tax : If you want to send your email, I can send you a expert referral.for that area. I will post my email for a few seconds after.acceptance if you want to send your email.
Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1,408
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
Verified
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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1,408
1,408 Satisfied Customers
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions

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