Erroneous Estimated Tax Penalty Calculation:
I found errors by 2 major tax software packages, which crank out estimated tax penalties. Some traders with large gains last year may have encountered this problem when they prepared their final 1999 Federal tax returns. The packages erroneously assumed that those gains occurred at the 1st quarter of the year.
According to the rules, "You do not have to make estimated tax payments until you have income on which you will owe tax." That time might be in the 2nd, 3rd or 4th quarter of the year. Please see details below.
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"When To Start
You do not have to make estimated tax payments until you have income on which you will owe the tax. If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. You can pay all your estimated tax at that time, or you can pay it in four installments. If you choose to pay in installments, make your first payment by the due date for the first payment period. Make your remaining installment payments by the due dates for the later periods.
No income subject to estimated tax during first period. If you first have income subject to estimated tax during a later payment period, you must make your first payment by the due date for that period. You can pay your entire estimated tax by the due date for that period, or you can pay it in installments by the due date for that period and the due dates for the remaining periods.
The following chart shows when to make installment payments:
If you first have income
on which you must
pay estimated tax:.....................Make a payment by:.................Make later installments by:
Before Apr. 1.......................................Apr.15.........................June 15, Sep. 15, Jan. 15 next year*
After Mar. 31 and before June 1..............June 15..................... Sep. 15, Jan. 15 next year*
After May 31 and before Sep. 1..............Sep. 15......................... Jan. 15 next year*
After Aug. 31..................................Jan. 15 next year*..........................(None)"
irs.ustreas.gov
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"Penalty rate
The penalty for underpayment of 1999 estimated tax is figured at an annual rate of 8% for the number of days the underpayment remained unpaid from April 16, 1999, through April 15, 2000."
irs.ustreas.gov |
