June 17 - Estimated Tax
Payment Due
It’s time to make your second quarter estimated tax installment payment for the
2013 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that
concept, the government has provided several means of assisting taxpayers in
meeting the “pay-as-you-go” requirement. These include:
- Payroll
withholding for employers;
- Pension
withholding for retirees; and
- Estimated
tax payments for self-employed individuals and those with other sources of
income not covered by withholding.
When a taxpayer fails to
prepay a safe harbor (minimum) amount, they can be subject to the underpayment
penalty. This penalty is equal to the federal short-term rate plus 3 percentage
points, and the penalty is computed on a quarter-by-quarter basis.
Federal tax law does provide ways to avoid the underpayment penalty. If the
underpayment is less than the $1,000 de-minimis amount, no penalty is assessed.
In addition, the law provides "safe harbor" prepayments. There are
two safe harbors:
- The
first safe harbor is based on the tax owed in the current year. If your
payments equal or exceed 90% of what is owed in the current year, you can
escape a penalty.
- The
second safe harbor is based on the tax owed in the immediately preceding
tax year. This safe harbor is generally 100% of the prior year’s tax liability.
However, for higher-income taxpayers whose AGI exceeds $150,000 ($75,000
for married taxpayers filing separately), the prior year’s safe harbor is
110%.
Example: Suppose your tax for
the year is $10,000 and your prepayments total $5,600. The result is that you
owe an additional $4,400 on your tax return. To find out if you owe a penalty,
see if you meet the first safe harbor exception. Since 90% of $10,000 is
$9,000, your prepayments fell short of the mark. You can't avoid the penalty
under this exception.
However, in the above example, the safe harbor may still apply. Assume your
prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than
the 110% of the prior year’s tax (110% = $5,500), you qualify for this safe
harbor and can escape the penalty.
This example underscores the importance of making sure your prepayments are
adequate, especially if you have a large increase in income. This is common
when there is a large gain from the sale of stocks, sale of property, when
large bonuses are paid, when a taxpayer retires, etc. Timely payment of each
required estimated tax installment is also a requirement to meet the safe
harbor exception to the penalty. If you have questions regarding your safe
harbor estimates, please call our office as soon as possible.
CAUTION: Some state de-minimis amounts and safe harbor estimate rules are
different than those for the Federal estimates. Please call our office for
particular state safe harbor rules.
June 17 - Taxpayers Living Abroad
If you are a U.S. citizen or resident alien living and working (or on military
duty) outside the United States and Puerto Rico, June 17 is the filing due date
for your 2012 income tax return and to pay any tax due. If your return has not
been completed and you need additional time to file your return, file Form 4868
to obtain 4 additional months to file. Then, file Form 1040 by October 15.
However, if you are a participant in a combat zone, you may be able to further
extend the filing deadline (see below).
Caution: This is not an extension of time to pay your tax liability, only an
extension to file the return. If you expect to owe, estimate how much and
include your payment with the extension. If you owe taxes when you do file your
extended tax return, you will be liable for both the late payment penalty and
interest from the due date.
Combat Zone - For military taxpayers in a combat zone/qualified hazardous duty
area, the deadlines for taking actions with the IRS are extended. This also
applies to service members involved in contingency operations, such as
Operation Iraqi Freedom or Enduring Freedom. The extension is for 180
consecutive days after the later of:
- The
last day a military taxpayer was in a combat zone/qualified hazardous duty
area or served in a qualifying contingency operation, or have qualifying
service outside of the combat zone/qualified hazardous duty area (or the
last day the area qualifies as a combat zone or qualified hazardous duty
area), or
- The
last day of any continuous qualified hospitalization for injury from
service in the combat zone/qualified hazardous duty area or contingency
operation, or while performing qualifying service outside of the combat
zone/qualified hazardous duty area.
In addition to the 180 days,
the deadline is also extended by the number of days that were left for the
individual to take an action with the IRS when they entered a combat
zone/qualified hazardous duty area or began serving in a contingency operation.
It is not a good idea to delay filing your return because you owe taxes. The
late filing penalty is 5% per month (maximum 25%) and can be a substantial
penalty. It is generally better practice to file the return without payment and
avoid the late filing penalty. We can also establish an installment agreement which
allows you to pay your taxes over a period of up to 72 months.
Please contact our office for assistance with an extension request or an
installment agreement.
June 30 - Taxpayers with Foreign Financial Interests
A U.S. citizen or resident, or a person doing business in the United States,
who has a financial interest in or signature or other authority over any
foreign financial accounts (bank, securities or other types of financial
accounts), in a foreign country, is required to file Form TD F 90-22.1 with the
Department of the Treasury. The form must be received by the
Treasury Department by June 30, 2013 for 2012 (Caution: Unlike other
forms that must be postmarked by the filing due date, this form must actually
be in the Treasury Department’s offices by the due date.) This filing
requirement applies only if the aggregate value of these financial accounts
exceeds $10,000 at any time during 2012. Contact our office for additional
information and assistance preparing the form.
