We are in between accountants, and working on getting someone new in the mix, otherwise I would touch base with them and get this issue clarified.
My question is, if we file a tax extension, and don't pay all of the taxes owed, what exactly the is the penalty. I am trying to figure out if I should pay what I roughly estimate we owe, or to just wait until our taxes are done, to pay exactly what is owed. I found the below info to be contradictory almost?
Any info is appreciated!
Based on my experience you should pay according to what you owed for the previous year. If you owe you must pay your owed taxes by April 15th even if you file an extension.
@Terry Royce To figure out what you owe, look at your W2 with holdings plus any estimated tax payements you made during the year. If these payments covered 100% of your 2013 tax liability, then you are all set.
The rule is 100% of prior year taxes or 90% of current estimated taxes to avoid penalties. If your payments do not cover 100% of your 2013 tax liability, you will want to estimated your 2014 tax liability and determine what 90% of that amount is. You will then want to compare the 2014 90% vs. the 2013 100% and determine which one is less. Then you pay the difference.
Example 1: 2013 tax liability is $30k and estimated 2014 tax liability is $40k. You will want to ensure your with holdings and payments amount to at least $30k. This is because 90% of $40k is $36k which is more than 100% of $30k. You want to pay the lesser of the two.
Example 2: 2013 tax liability is $30k and estimated 2014 tax liability is $31k. You will want to ensure your with holdings and payments amount to at least $27.9k because that's 90% of $31k (your current liability) and less than 100% of last year's liability of $30k.
Let me know if you have any questions.
@Brandon Hall - Thanks!
100% of my income is made through REI investments, so I have no W2 withholding, and I did not make any quarterly payments throughout 2014.
So if I look at my 2013 return, I can just write a check for the amount owed on that return and file it with my 2014 extension?
My 2014 liability is definitely greater than my 2013.
I appreciate your input during the busy time of year!
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