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William Brighenti, Certified Public Accountant
Certified QuickBooks ProAdvisor
Office Address:  46 Mildrum Road, Berlin, Connecticut 06037-2423      Phone:  (860) 828-3269      Email:  info@cpa-connecticut.com
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How to Calculate Your Estimated Tax Payments
Determine Your Estimated Taxes Correctly on Form 1040-ES & Avoid Penalties
by William Brighenti, Certified Public Accountant, Certified QuickBooks ProAdvisor

William Brighenti, Certified Public Accountant, Certified QuickBooks ProAdvisor, Accountants CPA Hartford, LLC, Berlin, ConnecticutThe Internal Revenue Service’s publications and notices on estimated tax payments have made them very confusing to many individuals and small businesses; however, after stripping away all the unnecessary verbiage in these pronouncements, the basic requirements of estimated taxes, including how to estimate the amount of one's estimated tax payments, should be clear to anyone interested.

First of all, you do not have to pay any estimated taxes for 2009 if you are a U.S. citizen or resident alien and had no tax liability for 2008.

Generally you are required to make estimated tax payments if you expect to owe at least $1,000 in tax for 2009 after deducting your withholdings, and you expect your withholdings to be less than the smaller of 90% of the tax shown on your 2009 tax return, or 100% of the shown on your 2008 tax return.  Taxpayers whose adjusted gross income (AGI) for 2008 was more than $150,000 would be required to pay also 90% of the tax to be shown on their 2009 tax return, but 110% (and not 100%) of the tax shown on their 2008 tax return.  For 2008, your adjusted gross income is the amount shown on Form 1040, line 37.

Consequently, unless you wish to spend hours estimating what your tax liability will be for 2009, or unless your tax liability will be much less than what it was in 2008, the quick and dirty way of computing your estimated tax payments is simply to take last year’s tax liability, multiply by 100% or 110% depending on your 2008’s adjusted gross income, and deduct any withholdings for 2009.

There is one major exception to the percentage limits mentioned above.  For 2009, individuals with small businesses are eligible to make smaller estimated tax payments:  your required annual payment for 2009 is the smaller of 90% of the tax shown on your 2008 tax return or 90% of the tax shown on your 2009 tax return.  To qualify as a small business, at least 50% of your adjusted gross income must have been from a business with less than 500 employees in 2008.  Don’t forget to check box F in Part II on Form 2210 or box C on Form 2210-F to certify that you qualify.

If you expect your 2009 tax liability to be materially less than that of 2008, then you may wish to estimate that amount, since you would only need to pay 90% of the calculated tax liability on that amount as your total estimated tax payment.  Estimated taxes are required to be paid in four equal installments; for the tax year 2009, those dates were April 15, 2009, June 15, 2009, September 15, 2009, and January 15, 2010.  Therefore, any estimated taxes due for the year 2009 should be paid by January 15, 2010 in order to minimize any potential penalties for underpaying your estimated taxes.

To estimate your 2009 expected adjusted gross income, taxable income, taxes, deductions, and credits for the year, review those amounts on your 2008 return and adjust accordingly.  If you are collecting unemployment compensation, do not forget to exclude the first $2,400 from gross income.  If you prepared your own taxes in 2008 with a tax software program, or if you have already purchased a tax software program for 2009, plug in the expected amounts for wages, income, dividends, capital gains/losses, business income, rental and any pass-through income from partnerships and subchapter S corporations, social security benefits, and miscellaneous income.  Don’t forget any adjustments toward income, including health insurance if self-employed, retirement contributions, alimony paid, etc., and your itemized deductions.  If you are uncertain about any amounts, err on the high side.  Once you derive the total estimated tax liability for the year, subtract your total withholdings and any estimated tax payments previously made for 2009.

If you do not have tax software, there are free programs available on the web, as well as calculators for estimated taxes.  And there is always that intimidating estimated tax worksheet provided by the Internal Revenue Service:

Estimated Tax Worksheet

Again, it is better to err on the high side, since you do not wish to incur any penalties.

If your estimated taxes for the year are less than $1,000, you do not have to make any payment.  For all payments, include “2009 Form 1040-ES”, your social security number and address on your check, made out to the United States Treasury, along with a 2009 1040-ES voucher (if you do not have a voucher, you may easily obtain one with a google search), and mail to the address listed below for your state of residence:

State of Residence
Mail to "Internal Revenue Service"at...
District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, Vermont P.O. Box 37001
Hartford, CT 06176-0001
New Jersey, New York, Pennsylvania
P.O. Box 37007
Hartford, CT 06176-0007
Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia
P.O. Box 105225
Atlanta, GA 30348-5225
Alaska, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington
P.O. Box 510000
San Francisco, CA 94151-5100
Arkansas, Connecticut, Delaware, Indiana, Michigan, Missouri, Ohio, Rhode Island,
West Virginia
P.O. Box 970006
St. Louis, MO 63197-0006
Kentucky, Louisiana, Mississippi, Tennessee,
Texas
P.O. Box 1300
Charlotte, NC 28201-1300
Arizona, Idaho, Illinois, Iowa, Kansas, Minnesota,Montana, Nebraska, North Dakota, Oklahoma, South Dakota, Wisconsin,Wyoming
P.O. Box 802502
Cincinnati, OH 45280-2502

Or you may pay electronically or by credit card.  Contact the Internal Revenue Service for further details.

This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.  For further information, please consult appropriate professional advice from your attorney and certified public accountant.

Have a tax or an accounting question?  Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants.  For information and assistance on any tax and accounting issue, please visit our website, Accountants CPA Hartford, and our blog, Accounting and Taxes Simplified.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor.
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