Question from a reader:”I lost my job and am want to know how to deal with quarterly taxes now. I am anticipating working this coming third quarter but I don’t want to pay taxes on money I haven’t made yet and then worry about having to wait till 2010 to get it back as a refund. Any suggestions for me, Kim? Thanks.”
My answers are that, first, if you are taking about your second estimated or June payment, you are late (I always seem to get a lot of emails when it is after the filing date.) Your payment is due on June 15 2009 in this case. You should be paying taxes on what you estimate to be your 2009 tax liability up to this point based on what you have earned. The worksheet that accompanies the 1040-ES forms on the IRS website along with the tax bracket ranges should give you an indicator how much you should pay. If you didn’t make any money, had a really bad quarter (or series of quarters so far this year) that wasn’t/weren’t profitable, you do not need to file estimated taxes. Remember that we are in a pay as you go system and the latest that Uncle Sam likes to get his money (and in some cases if you have a state income tax like California, Aunt California) is quarterly.
If you are being paid cash, I suggest you track your logs and pay whatever tax you calculate that you owe because if you are already a going concern, the IRS may ask to see your records if there is a super drop in your income stream. Don’t get me wrong, they are aware that we are working in a Depression, they just have a mandate to generate tax revenue. It is their job. They also are more willing to work with people that are in compliance with the law than with people who are trying to do something to skirt it. I tend to agree with them on the subject of, if I am paying taxes, they are paying taxes, you should be paying taxes as well if you owe money.
I would always caution a reader to make sure that you use money for food, clothing and shelter first and keep an awareness that there is a tax consequence or benefit for every transaction and plan accordingly.
Getting back to the question, I would suggest that you caclulate what your tax is using the tax tables or if you want a super quick and dirty method to take the gross amount of income that you received and send in a third of it to the Fed. If you live in a state with a state tax (like California) I would take the total income and calculate a third of it for taxes. Out of that third, divide that into thirds and send in two thirds to the Fed, and a third to the state.
A quick guesstimate example might look like this:
You made $3000 for the second quarter. You take one third of the $3000 and that gives you $1000. That was calculated as $3000 / 3 = $1000.
Then you take the $1000 and divide that into thirds and get $333.33 for each third. You would send in 3/3 to the Fed by the filing deadline (roughly $667) and the respective state would get $333. Again this is very rough and you need to base it on your particular financial situation and income stream to make it work.
That is a quick and dirty method and a very generalized one but that should help mitigate any tax liability you might have. I am not a huge fan of that method because you may be overpaying your taxes and you will be in the situation that you mentioned where you will need to wait till 2010 to get your refund back. For a more accurate calculation, you will need to sit down with your tax guy or gal and crunch the numbers or get into the tax software yourself and start tallying up what your income was, cross-checking that with the tax tables and making your estimates accordingly.
If you look like you are going to owe it is better if it doesn’t bleed you dry financially to pay the taxes now since you may not know what next year will bring. Sure, your financial situation could be better. For a lot of people it will be the same or get worse.
Do your own research because your particular situation might involve other income streams and tax scenarios that are not covered by this quick suggestion.
If you also have any resale or state required license taxes that need to be paid off or installment paid, please remember to make the payments as well. You may find that some local municipalities have horrible penalties for non-compliance. It is better to just bite the bullet and make the payments.
If you are short of cash, you need to start tracking your income stream a little better. The agencies want their money and they will get it from you one way or another. You can bet on that. Hope that answers your question.
Good luck getting your income back and have a great day! Best of luck to all my readers as well!
June 30 2009
If you are looking for a day job, part time work, suggestions for saving money or investing, please check out my book, Practical Money Making, that is listed right after his paragraph in this very post. There are some great suggestions and ways to survive the Depression we are in.
Practical Money Making-Surviving Recession, Layoffs, Credit Problems, Generating Passive Income Streams, Working Full Time or Part Time and Retirement
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Part of all the proceeds from the sales of that book go to Rett Syndrome research. One girl is born with Rett Syndrome worldwide every fifteen minutes. My daughter Arianna has Rett Syndrome and we are working to do all we can to make her life easier and find a cure in her lifetime. Boys born with the Rett gene generally die at birth.
Kim Isaac Greenblatt
Summer Tax Planning and Loss of Work