TAX ADVICE from Julian Block
Estimated Taxes: Another Deadline Coming Up
(May 13, 2004) On April 15, most taxpayers filed their 1040
forms for 2003, and many made their first estimated tax payment
And before they know it, another deadline is just around
the corner. Tuesday, June 15 is the due date for the second
quarterly installment of your estimated income tax for 2004.
Who has to make estimated payments?
Individuals with income from sources not subject to withholding.
Mainly, these are self-employed earners and investors who
receive interest, dividends and profits from sales of assets.
If your estimated tax is less than $1000, you can skip this
Others who can run afoul of the quarterly rules include:
(1) divorced individuals who receive alimony payments; (2)
retirees who choose not to have tax withheld from their Social
Security benefits, and pension payments; and (3) recipients
of unemployment compensation.
Watch Out for Extra Income! Even when
withholding is subtracted, it might prove insufficient, as
and bonuses received
by you or your spouse. The law authorizes the IRS to exact
penalties for insufficient quarterly payments or for failure
to pay the installments on time as they become due. It is
immaterial that your final estimates are enough to eliminate
any balance due when you submit 2004's 1040 form in
Dodging a Bullet
There are "safe harbors" or
exceptions that relieve you of any penalties for underpayments
above $1000. You need not fret about penalties as long as
you made payments or withholding for tax year 2004 by the
due dates of April 15, June 15, September 15, and January
17 (the 15th falls on a Saturday) that exceed a specific
Those payments must be more than the least of the following
- 90% of the actual taxes you owe for 2004.
- 100% of the taxes you paid
for 2003 (the figure on line 60 of 2003's 1040 form). This
holds true even
if the amount due was zero, provided the return covered
as it ordinarily would.
Because the second exception -- the prior year's tax – makes
use of a fixed number, it’s usually the easiest way
for individuals to calculate their payments and sidestep
penalties. An example: Your tax payments total $12,000
for 2003 and $13,000 through estimates or withholding in
With that sort of scenario, you are home free, no matter
how much 2004’s liability turns out to be.
90% of the actual taxes you owe for 2004,
determined by annualizing income actually received
by the end of the
quarter in question.
The third escape clause is most helpful to persons who receive
the bulk of their incomes late in 2004 – for instance,
writers who receive book royalties in December.
"Wealthy" Watch Out! Different
rules kick in when adjusted gross income (the amount on
the last line of page one of Form 1040) surpasses $150,000
for married couples filing separately). To take advantage
of the 100% escape hatch, estimated payments must
be at least equal to 90% of the actual taxes
you owe for 2004 or 110% of your tax liability
2003, whichever is the lesser figure.
Julian Block lives in Larchmont and is a syndicated
columnist, attorney and former IRS investigator who
the New York Times has called “a
leading tax professional.”
His “Year Round Tax Savings” shows how
to save big money on taxes – legally. To purchase
a copy, email: at firstname.lastname@example.org.
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