September 3, 2013 8:30 am

Revising Estimated Taxes

The third installment of federal estimated income taxes for 2013 is due on September 16. Now is a good time to assess where you stand from a tax perspective to this point in the year and adjust the September 2013 and the January 2014 estimated tax payments accordingly.

Gains and losses

Have you had any significant transactions since you previously figured your estimated taxes for 2013? Maybe you sold a piece of property at a sizeable gain? Maybe you took a significant loss?

Review the sales that you’ve actualized. Project what you think you may do between now and the end of the year with your investments. Make an estimate of how your actions to date and in the months to come will impact your tax bill.

New laws

In making your estimates, take into account new rules that could raise your tax bill if you are considered to be a high-income taxpayer:

  • Phase-out of itemized deductions means you can claim less of the deductions to which you are otherwise entitled.
  • Phase-out of personal exemptions means you may lose some or all of the exemptions for you and your family.
  • 0.9% additional Medicare tax on earned income is a new tax that may or may not be covered by additional withholding.
  • 3.8% additional Medicare tax on net investment income is a new tax that should be paid through estimated taxes.

Safe harbor

If you want to play it safe and avoid underpayment penalties, peg your estimated tax payments for the year according to your tax bill in 2012. As long as you pay at least the same amount in 2013 estimated taxes (110% if your adjusted gross income in 2012 was more than $150,000, or $75,000 if married filing separately), you won’t owe any penalty, regardless of your ultimate tax bill.

Adjust wage withholding

If you (or your spouse) have a job, you can avoid paying estimated taxes by increasing withholding from your pay to cover your estimated tax liability. You have two options:

  • Reduce your withholding allowances so that more is withheld from your pay between now and the end of the year.
  • Specify an amount to be withheld.

State estimated taxes

If you live in a state with an income tax, you probably have an estimated tax responsibility for state income taxes. Check the minimum payments and filing deadlines.

Conclusion

Certainly, you want to pay enough estimated taxes to avoid penalties. But there is also a practical reason to do this. If you fail to pay estimated taxes, you may not have the cash available to pay what’s owed when you file your 2013 tax return. This can put you in a financial crunch. Talk with a tax advisor to make sure you’re meeting your estimated tax responsibilities.

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Factoids
FACT: 

Noncash donations

For 2009, 21.9 million individual taxpayers who itemized deductions reported $31.8 billion in deductions for noncash charitable contributions. Corporate stock donations accounted for the largest percentage of total noncash donations, followed by clothing donations.

Source: Statistics of Income Bulletin, Spring 2012

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