only income from a bank interest part 2?

Question

this question is related to this thread:

http://answers.yahoo.com/question/index;_ylt=Agnz3W_.Cyi_TEDROMe171ykxQt.?qid=20070222182452AA2ZWzJ

im posting here again so the original ppl that answer my questions can answer my the following questions.

someone said if i would be earning that much interests..lets hypotically say $50,000/year...that i should be pay quaterly to have those money withheld so i wont get a penalty at the end of the year when you file your return. should i contact the IRS and tell them i will be earning that much interest and that they can automatically "withheld" some of the money? how much would money would be witheld each quarterly or monthly, just a rough estimate? or do i need to hire an accountant to do that for me? i dont want to hire someone or pay money when i can do this for myself.

i would like to thank everyone who was helpful in that thread and especially to bostonianinmo, Peggy K, and pusherhomb.

same for $500,000/year, and $1 million/year. thx in advance.

Answer 1

The IRS wouldn't have anything to withhold the estimated taxes from, so no, contacting them and asking them to do so isn't something you can do. What you need to do is figure out approximately what you'll owe in taxes at the end of the year, and make sure that 1/4 of that amount is paid in each quarter, either through withholding or by estimated payments.

Answer 2

If last year you were not liablie for taxes then you don't have to pay estimated taxes this year. Form 2210 will help guide you as to how much of a penalty you will get if you WERE liablie.
Generally if this is a re-occurring issue then you do have to pay quarterly with 1040 ES vouchers. You can buy software, like tax cut that will help you estimate how much is due quarterly.
If your only income is 50K in interest and you are single filing with no other itimized deduction, then your taxable income is $41,550 (50,000 - 5,150 (itmized deduction)-3,300 (1 exemption) = 41,550) Then you go to the IRS tax table and figure out your tax. In this case it's $6951. Your first estimated payment will be due 04/15/2007 of 1/4 of that, your second 1/4 will be due 06/15 third 09/15 and fourth 01/15/08. You can find tax rates at www.irs.gov in the instruction booklet to the 1040. They're listed in PDF format on page 62.
Good luck.

Answer 3

You will get a small penalty if you do not pay estimates. I reiterate the penalty is small. Many of our clients do not pay estimates for that reason. Others just make a lump sum estimate before January 15 of the following year.

As for how much estimates you should pay simply divide your presumed tax liability by four and send those payments to the IRS. You can get the address as to where to send your estimates online at www.irs.gov or just by calling the IRS.

If you elect to pay estimates for 2007, your tax return program will likely print coupons with the IRS' address printed on each coupon.

Answer 4

Bank interest isn't subject to withholding. If that's the only income, you have to make quarterly estimated payments to the IRS using Form 1040ES. If you don't there will be penalties and interest at tax time due to underpayment of taxes.

Same rule applies to State income taxes.