Quarterly Tax Payments - Capital Gain?

Question

I have a friend who is about to inherit $15,000 from the selling of some land (capital gain).

Last year (2006 Tax Year) they owed about $15,000 in taxes because of the first income from the land.

How would you suggest paying for taxes (since they don't receive the money till later this summer) and would you strongly encourage quarterly tax payments? Secondly, is their a chart on how much tax they would owe on the $15,000 capital gain? Thanks for any help you can provide.

Sorry I shouldn't have used inherited (bad choice) rather parents sold the land and she received 10% + tax payment.

Again sorry for the confusion. She was a 10% owner of the property after asking her. Thanks again for all the help.

Answer 1

This is what I think you said happened:
Your friend owned 10% of a property.
The property was sold and she received $15,000
Your question is: How much tax will she pay and should she make an estimated tax payment, or wait until she files her return next year.

1. Part of the $15,000 probably represents return of her basis and not a gain.
2. If the property was held for more than a year, the gain is a long term capital gain.
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The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2006, the maximum capital gains rates are 5%, 15%, 25% or 28%.

Assuming the entire $15,000 is a long term capital gain and she is in the 25% tax bracket, she will pay 15% of the $15,000 or $2,250. She can either make an estimated payment, or if she has a job, she can increase her withholding to cover the tax.

Answer 2

You may want to check the circumstances. If the property was inherited the basis is the FMV on the date of death of the deceased. The only gain would be from that date to the date of sale which would normally be resolved with the cost of sale. There would not be a chart as there would be a number of circumstances involved in determining the tax most of which you have not included.

Answer 3

There is not really a chart. They need to look up the 1040 tax tables and see what there total income will be both including & excluding the $15k. Then they will have a rough idea as to how much they should deposit via quarterly tax payment. Here is the link to the charts for income, they just need to figure it based on their total income & any employer withholding. http://www.irs.gov/formspubs/article/0,,id=150856,00.html

The QETP will be due the month following the Quarter that the income is earned (Qtr1-Jan to Mar, Qtr2-Apr to Jun, Qtr3-Jul to Sep, Qtr 4-Oct to Dec). Here is the link to the FAQ's for their quarterlies http://www.irs.gov/faqs/faq9-3.html

Answer 4

Now your question is even more confusing. If her parents sold the land and gaver her 10% of the proceeds, that's a gift from her parents and is not taxable to her UNLESS she was a 10% owner of the property.

If she is a 10% owner of the property the $15k may be taxable or may not be. It depends upon how much of it is gain and how much is just a return of her basis. Without knowing all of the figures and circumstances, it's not possible to say.

Answer 5

In light of the 2 additional details:

If her 10% ownership was for for more than a year, her taxes on it will be 15% or less (of the gain in value since she acquired it) depending on her other income. If her ownership was for less than a year, the gain will be taxed as ordinary income (just like wages from a job, but no SS or medicare taxes).

Answer 6

You shouldn't need to pay an estimate as long as you've paid 100% of your tax liability from the prior year. Meaning, if you pay in the amount equal to your total tax liability due in 2005 (total tax paid, not how much you owed at 4/15) in 2006, then you shouldn't need to make an estimate. It wouldn't hurt to make one by Jan 15th, so you don't accidentally spend the money and not have enough to pay your liability at 4/15.