Estimated Taxes

[Super Mom]

I have a client who just went into business for themselves this year and wanted to know about estimated taxes. I informed them that they can use the option of paying 100% of the tax they owed last year (2006) to avoid any end of the year penalties (on less than $150,000). Of course I recomended that for their purposes they let me look at exact business numbers and I can give them real close to exact amounts, but this 100% method of last year will at least help them avoid IRS penalties on payments, did I tell them right?

Thanks in advance for your help!!

[sea-tax]

I have a client who just went into business for themselves this year and wanted to know about estimated taxes. I informed them that they can use the option of paying 100% of the tax they owed last year (2006) to avoid any end of the year penalties (on less than $150,000). Of course I recomended that for their purposes they let me look at exact business numbers and I can give them real close to exact amounts, but this 100% method of last year will at least help them avoid IRS penalties on payments, did I tell them right?

Thanks in advance for your help!!

Sounds right to me. I generally try to get those clients who I do not do bookkeeping for to at least see me with some updated financials at least by july or august that way if the original estimates were way off I can correct.

[FEDUKE404]

A couple of things to consider also

Your plan sounds plausible, Super Mom.

I would remind client that they(?) might have a large tax liability (hopefully the business does well!) at tax filing time, although you certainly can avoid any underpayment issues with a protective estimate. Some folks do not take too well to writing large checks to the IRS! If there is a Sch SE issue here, the client could really get an unexpected surprise.

Also, don't forget there might be some merit in pre-determining the state tax liability and paying some/most of that prior to 12/31/07.

One minor caveat: If 2007 estimated tax payments for April and/or June were required, but were not made, you might want to read the fine print about "timely payments." For payments other than via withholding, it's not only "what" but also "when" that the IRS can monitor. Yes, you can even get a refund and still have an underpayment penalty that shrinks it.

FE

[thomtax]

" For payments other than via withholding, it's not only "what" but also "when" that the IRS can monitor. Yes, you can even get a refund and still have an underpayment penalty that shrinks it.

FE

So true. I had one that was just a few days late making one of the estimated payments,getting a refund, but had to pay a penalty for being late with the estimate.