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I am using Turbo Tax to do my 2006 taxes and the program is suggesting I make estimated tax payments for '07. I am not self employed (I work for a bank) and receive ~95% of my income from my employer (and hence reported on a W-2). I receive ~1/3 of my annual income in a lump sum in the middle of year (e.g. a bonus). Should I make estimated tax payments or is Turbo Tax being too conservative? I am not sure if the bonus is skewing the estimated tax liabilty for '07. Thoughts? Do other people who receive a sizable annual bonus, and who receive most of their income from their employer, make estimated tax payments?

Thanks in advance for the help!

2007-03-01 02:29:58 · 6 answers · asked by Baxter B 1 in Business & Finance Taxes United States

Thanks for the input. I looked over my tax return and I'm due a federal refund of $1200. I guess I could understand why I should make estimated payments if I UNDERPAID, but I overpaid. Given my reluctance to get hit with a underpayment penalty for '07 taxes, no matter how unlikely that is, I'm inclinded to make the estimated payments. Thoughts? Am I just being unnecessarily cautious?

2007-03-04 14:10:02 · update #1

6 answers

The best indicator is if you are having to pay in a large amount in taxes at the time your return is completed, or if you are getting huge refunds.
For years this has not been an issue, but last year, the IRS started sending ES payment forms to people that are getting huge refunds (not EIC), because they prefer a taxpayer to withhold as close to even as possible. Back in the day, the IRS used to penalize people for withholding too much.
www.irs.gov, individual, withholding calculator is a good worksheet to determine your correct withholding. If your withholding is good, then No, you shouldn't make Estimated Tax payments.

good luck & bless

2007-03-01 02:36:48 · answer #1 · answered by Wood Smoke ~ Free2Bme! 6 · 0 0

It seems your employer is withholding taxes from your bonus, therefore your refund. If the refund is due to your tax deductions, you could consider making estimated payments. The most beneficial payment schedule would establish a small payment for April 15, then the larger payments for the rest of the year. It is a very cumbersome calculation and if you are happy with receiving a refund, let it be. In any case, if your tax payments are the same as last year, there will be no penalty for underpayment.

2007-03-07 05:44:57 · answer #2 · answered by Trudy H 1 · 0 0

No, don't make any estimated payments. Were any taxes withheld from your bonus? If not, that's probably what triggered the estimated taxes for '07. I get substantial bonuses but they are net of tax. Even if they weren't taxed, I wouldn't pay estimated taxes.

Estimated taxes are for folks whose employers don't withhold tax from their wages, work independently, or have business/passive income through partnerships and joint ownership ventures. It doesn't sound like any apply to you so don't worry about it.

2007-03-08 06:34:01 · answer #3 · answered by Luvly 3 · 0 0

If you come out about even at tax time, and don't owe a large amount when you file, then no, don't worry about making estimated payments. But if at tax time you owe over $1000, then either make estimated payments or file a new W-4 increasing your withholding.

2007-03-01 10:18:50 · answer #4 · answered by Judy 7 · 1 0

No. Do you claim 0 on your w4s? Then at end of year claim yourself and or your dependents if any? You could invest your bonus if that is what has u worried about 2007. For the best advice consult a CPA or tax attorney to prepare yourself for next year. Better to be prepared than to be blindsided .

2007-03-07 06:16:59 · answer #5 · answered by mmbmw2000 4 · 0 0

I would try the free tax estimators from taxcut and turbotax. They also keep track of your yearly tax situations. Please see http://mytaxgurus.com for some discounts and dont forget to check irs.gov for the latest updates.

2007-03-08 06:31:15 · answer #6 · answered by Anonymous · 0 0

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