Saturday, April 17, 2010

How to calculate estimated taxes

If you owed tax additional tax this year, it is possible that you should pay estimated taxes. If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule
In most cases, you must pay estimated tax for 2010 if both of the following apply.
  1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
  2. You expect your withholding and refundable credits to be less than the smaller of:
  • 90% of the tax to be shown on your 2010 tax return, or
  • 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.
You can use a worksheet to make a more accurate calculation. If all of your income is subject to withholding, you probably do not need to pay estimated tax. You will want to review your withholding with your employer.
You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.
  1.  You had no tax liability for 2009.
  2. You were a U.S. citizen or resident alien for the whole year.
  3. Your 2009 tax year covered a 12-month period.
 There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.
  • Farmers and Fishermen
  • Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
  • Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
  • Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)

Friday, April 16, 2010

Do you think the tax system is fair?

A CNN poll conducted by Opinion Research Corporation asked the question, "How fair do you think our present federal tax system is? Overall, would you say that our tax system is very fair, moderately fair, not too fair or not fair at all?"

Some press reports have reported that the results indicate the country is evenly divided on the issue with 49% responding that the system is fair and with 50% saying opining that it is not fair. The details hint otherwise though. Here are the results.

Very fair 
Moderately fair 
Not too fair 
Not fair at all 

A more complete picture of the results gets interesting outside of the 75 percent of respondents in the middle. Five times as many people responded "Not fair at all" than responded "very fair." These numbers do not appear to have changed much over the last 25 years.

What has changed is the way people feel about the taxes they paid. The poll asked, "Are you very angry about the amount of federal incomes taxes you or your family paid last year, or fairly angry, or fairly satisfied, or very satisfied -- or don't you have any particular feeling one way or the other about the amount of federal income taxes you or your family paid last year?" The responses from this poll and from similar LA Times polls in 1985 and 1986 were:

Very angry 
Fairly angry 
Fairly satisfied 
Very satisfied 
No feeling 

This is an increase in angry responses from 27/33 percent in 1985/1986 to 40 percent.
Taxpayers do not seem to want to take their frustrations out on the IRS though. Respondents were asked, "Do you think the Internal Revenue Service should be abolished, or don't you feel that way?" A majority of people did not think that the IRS should be abolished. The results in this poll and in a 1998 CNN/Time poll were:

Should not
No opinion 

The survey was conducted by Opinion Research Corporation and CNN April 9-11, 2010. The margin of sampling error for results based on the total sample is plus or minus 3 percent. To see the entire survey, go to

Wednesday, April 14, 2010

Do you have too many bank or investment accounts?

I’ve prepared many returns over the last few years, and I’ve been surprised at the number of 1099 forms that clients bring in with their files. Multiple checking and savings accounts and investment accounts are easy to accumulate. People often open new accounts when they apply for auto loans and mortgages or home equity loans. Some people like the idea of banking with a large bank, but they still like to have accounts in local banks or credit unions. Sometimes people change banks to chase rates and don’t close old accounts.

Why is it a problem to have a lot of accounts? It may not be a problem. It makes sense to have separate accounts for personal and business items. It also makes sense to have accounts for special purposes. It becomes a problem when there are too many accounts and there is not a good reason to have them. Here’s why.

Confusion: It is difficult to keep track of many accounts

Cost: Financial institutions often have balance requirements that determine fees. Spreading assets around may mean that individual account balances are too small to qualify for fee waivers. Investment and brokerage accounts, for example, a typically base commission charges on account balances.

Reduced returns: Many financial institutions use account balances to help determine the rates of return they will pay on account balances.

Complications: Having more accounts than necessary adds to the complexity of financial transactions. This leads to increased bookkeeping fees and tax preparation costs.

Take a look at your statements. Does it look like you have too many accounts?