Make sure your Tax Payment are on Time

Make sure your Tax Payment are on Time, the IRS doesn’t wait until returns are filed to collect income taxes from taxpayers. Most people are required to pay tax during the year by making quarterly estimated tax payments to the IRS or having their employers withhold income taxes from their paychecks. It’s important to pay at least as much estimated tax as the tax law requires so you won’t owe an underpayment penalty. How Much Is Enough?Taxes mark The total amount of estimated tax you’re required to pay depends on your adjusted gross income (AGI) for the previous year. If your 2011 AGI was $150,000 or less ($75,000 or less as a married taxpayer filing separately), you should aim to paythe lower of:
  • 90% of your 2012 tax liability or
  • 100% of your 2011 tax liability
If your 2011 AGI was more than $150,000 ($75,000 as a married taxpayer filing separately, pay the lower of:
  • 90% of your 2012 tax liability or
  • 110% of your 2011 tax liability
Generally, estimated tax payments must be made in four equal quarterly installments due on the 15th of April, June, September, and January. (This year’s September installment is due on the 17th because the 15th is a Saturday.) However, if you receive income unevenly (because you have a seasonal business, for example), you may be able to vary the amounts of your payments and still avoid penalty using what’s known as the “annualized income” method. Note that withheld tax is treated as though it were paid in equal amounts on each installment due date. Under a special rule, you won’t owe an underpayment penalty if the tax shown on your 2012 return, after reduction for withholding tax paid, is less than $1,000. The underpayment penalty also won’t apply if you had no tax liability last year and you were a U.S. citizen or resident for the whole year. See Where You Stand At this point, you may want to review your 2012 tax situation and see where you stand with respect to your tax payments. As nice as it is to get a refund, overpaying your taxes during the year is like giving the IRS an interest-free loan. On the other hand, many people don’t want to face a large tax bill in April — especially if it’s a bill they weren’t anticipating. A tax projection can give you a clearer picture of your situation. Now is also a good time to discuss potential year-end tax planning moves with us.

Paying Grandkids’ Tuition

With tuition bills for prep school, college, and grad school getting steeper each year, you may wish to help your grandchildren (and their parents) pay for some of the cost. If you’re looking for a gift-tax-free way to do so, you may want to consider making direct payments to the school for tuition expenses. The direct tuition payments are not treated as gifts for gift-tax purposes, so you can make unlimited payments without any tax consequences. This funding option applies to all educational levels — from nursery school to postgraduate education. However, to qualify, payments must be made directly to the educational institution and they can be for tuition only. To help pay for other expenses, such as room and board, books, and fees, you can make tax-free gifts to your grandchildren, up to the gift-tax annual exclusion amount ($13,000 per child in 2012; $26,000 if your spouse joins in the gift).