How do you estimate the tax?

[NotEasy]

In the past, when I needed to calculate the estimated tax that a client needed to pay because of a real estate transaction, I'd first calculate the gain manually and then plug the number into the last year tax program (we always only have the last tax program on hand because the current year program will not be available until January next year). And then I compared the tax on the original tax return with the tax after I have added the gain from the real estate transaction. The difference would be the estimated tax that I tell my client to pay.

But the capital gain rule is changing and the rate for 2013 is not the same as the one in the tax program (2012) that we have now. So how would you do the estimation?

[Matt Sova]

Cap gain

The capital gain rules only change for high income people for 2013. My software has a tax projection worksheet that gets updated with tax law passages so it will calculate the estimates with better accuracy.

[Y2KEA]

Unless the TP insists on prepaying the capital/recapture taxes, I would use the safe harbor method & pay 100/110% of the prior year taxes.

[Kram BergGold]

Y2kea

I feel your approach is too simple regarding state estimated taxes (however, I just ralized maybe yuo are from TZ, WA etc and don't have state income tax) . You are ignoring the affect state taxes will have on AMT in the year of sale or the year following the sale.

[Traveling EA]

Estimated taxes

I have not seen a tax projector within a tax program that allows you to do multiple scenerios over several years. There is a a tax projector program from BNA (or at least there used to be) that allows you to project out 10 years with multiple scenerios. I used it when I worked for a regional CPA firm. It worked great, but was kind of pricey. If I was doing enough projections, it would be well worth the money, but since I would only need it for a few clients, I cannot justify the cost. It does help to manage AMT over a couple of years - when should i pay the state taxes and how will it effect AMT.

[Matt Sova]

Tax projection

When you use top of the line software you have tax projection availability. I have UltraTax that has a tax projection worksheet based on 2012 and you change amounts for 2013 and also Planner CS that allows you to put in multiple scenarios over multiple years.

[taxea]

I find the IRS form to be way too time-consuming. I take the tax due amount and add to that the withheld amount I divide this figure by the number pay periods in the year. I look for the clients filing status and income in circular E, match the pay period amount, add $20 per pay period, then use the number of exemptions that shows at the top of that column. The $20 per pay period ensures that the client will receive a small refund.