2009 Tax Forms are Available

Crazytree said: I'm probably going to file on Jan. 1, so this is good news.Horrible idea. File on January 1 and I can almost guarantee that you'll be back here in February or March asking about how to amend your return to include that 1099 that you forgot about. Happens every year.

Even if you think you have everything, you could still get caught. My employer has sent amended W-2's several times over the years or sent out additional W-2's for taxable reimbursements that most people never realized were coming. Don't you love when you get an email from your employer in February that says, "Do not file your tax return before reading this...?"

Okay, Triple B and Crazytree excepted, but for everyone else, you should wait a little while before filing your tax return:

2008 Example #1

2008 Example #2

2008 Example #3

2008 Example #4

2008 Example #5

tripleB said: Crazytree is one of those responsible people that knows the risks of filing early...I don't know about responsible, but filing on January 1 is generally a sign of two things: 1) fairly low income, since last minute tax changes, such as AMT patches, are often not reflected in the calculations until late January/February (this year the AMT patch was enacted way early but other regs are still in the hopper), so the only way that you can feel comfortable filing on January 1 is when you know for a fact that you won't be subject to any of them, which only happens in fairly low income situations, and 2) a sign of poor financial planning/lack of financial sophistication. This is because the only real advantage to filing on January 1 is receiving a large tax refund early. Good financial planning means that instead of giving a tax-free loan to the government, you've done the calculations to ensure that you will actually owe money at the end of the year while minimizing or eliminating underpayment penalties. If you've done that, you will generally file right around April 15, since you want to extend that interest-free period as far as possible.

Likewise, you can only file early if you have a very simple financial situation. If you have various types of investments and business ventures, there is no possible way for you to be prepared to file on January 1, since you must first receive and complete the calculations for those investments and ventures.

LawDawgAtl said: ...If you've done that, you will generally file right around April 15, since you want to extend that interest-free period as far as possible...Even if you owe money, you can file without paying.

You only have to PAY by the due date. A taxpayer may elect to submit a return early in the tax season and then remit the balance due in a separate mailing closer to the due date.LawDawgAtl said: ...Good financial planning means that instead of giving a tax-free loan to the government, you've done the calculations to ensure that you will actually owe money at the end of the year while minimizing or eliminating underpayment penalties....While that's the conventional wisdom, with interest rates this low, it doesn't matter a heck of a lot of difference.

It's not like you can delay remitting an entire year's tax payment until April 15. As you point out, to avoid penalty, you have to withhold or make estimated payments large enough to avoid a penalty, so you're only earning interest on a small part of your tax payment. For most people, it's not worth the hassle.

For very wealthy people (like all FWF members) that might be different, but for the average taxpayer, being under-withheld is not going to make them much money.

tripleB said: Why is everyone still talking about FILING on Jan 1st?We are discussing Crazytree's comment that he will probably be filing on January 1 and your subsequent comment that such a statement is a sign of "responsibility." As I explained above, it may or may not be a sign of responsibility, but it is almost certainly a sign of low income and/or poor financial planning.

Even if I had pay stubs or bank statements to determine amounts to file, I'd still wait for the W-2's and 1099's to come, and those most certainly aren't going to be there until late January or early February. The only compelling reason for rushing to file would be if you needed the completed tax return for some other purpose, such as a loan application or a financial aid package.

Xnarg said: While that's the conventional wisdom, with interest rates this low, it doesn't matter a heck of a lot of difference.

It's not like you can delay remitting an entire year's tax payment until April 15. As you point out, to avoid penalty, you have to withhold or make estimated payments large enough to avoid a penalty, so you're only earning interest on a small part of your tax payment. For most people, it's not worth the hassle.

For very wealthy people (like all FWF members) that might be different, but for the average taxpayer, being under-withheld is not going to make them much money.I agree, but it is also silly to leave money on the table, especially when it's such easy money. Besides, if you are going to take the risks associated with filing on January 1 or thereabouts, you really do need that refund or you wouldn't be jumping through hoops to get it early. This is a result of poor financial planning since instead of scrambling to file early to get your hands on that refund, the taxpayer would have been far better off getting his taxes underwithheld, waiting until all the tax regulations were finalized and all the tax forms arrived, and then calmly filing his return around April 15th.

LawDawgAtl said: Xnarg said: The upside is that you get it done and don't have to worry about it. Is that peace of mind worth a couple of bucks? Maybe so.If you are not expecting a refund and are filing early so you don't have to worry about it later, there is nothing preventing you from getting it done early and then holding off filing it until later on and including your tax due at the same time.

Besides, as I mentioned above, the only way that you can file as early as January 1 anyway is when your income is quite low, so that you don't have to worry that last minute changes, such as AMT patches and the like, will affect your calculations.I don't have a mortgage interest deduction... so why exactly should I give a f about AMT patches? I can't even deduct my student loan interest.

Also, I keep meticulous records (and copies of all checks) that account for every penny that I make via 1099, so if a 1099 doesn't match, I have all my backups and the issuer will have to correct the 1099. Besides, I filed my 2008 taxes with no 1099's, because my primary source of income didn't file their taxes until 10/15... and I probably won't get a 2008 1099 until 2010.

Finally, I'm buying a house mid-year... and I am going to owe significant taxes, and although I am not paying the taxes until April 15th, I would like to know exactly what my financial situation is going to be like next August. And the only way to do that is to determine my exact 2009 tax liability... which I can do on January 1st.

So unfortunately I'm in a position where I have a very high income and no chance of being subject to the AMT. The only thing that may hold me up is my IRA and investment paperwork from Fidelity. And as discussed, my chances of receiving a 1099 by April 15 are slim to none.

Xnarg said: LawDawgAtl said: Xnarg said: LawDawgAtl said: ...If you've done that, you will generally file right around April 15, since you want to extend that interest-free period as far as possible...Even if you owe money, you can file without paying.

You only have to PAY by the due date. A taxpayer may elect to submit a return early in the tax season and then remit the balance due in a separate mailing closer to the due date.Absolutely, but if you actually owe money to the IRS, as you should, there is no possible upside to filing early.The upside is that you get it done and don't have to worry about it.

Is that peace of mind worth the couple of bucks interest the average taxpayer mightearn in a savings or checking account? Maybe so.don't bother trying to reason with him, he is geo123's closeted lover, and comes out to defend his boyfriend with some frequency.

Crazytree said: don't bother trying to reason with him, he is geo123's closeted lover, and comes out to defend his boyfriend with some frequency.Are you off your medication?

Xnarg said: One element of good financial planning is focusing on big issues and not little ones.

With interest rates this low, the amount of (taxable) interest people might earn by slightly under-withholding isn't going to amount to more than a very small amount.

To avoid a penalty, you have to withhold or make estimated payments of 90% of the prior year's tax.

If your federal income tax bill is $10,000, that means you have to withhold $9,000 and pay $1,000 later. If you have your taxes withheld ratably throughout the year, that means you have an average balance in your account of around $500. At 1% interest, that's a big $5.00. Yeah, I know it's going to be closer to $6 because of paying around April 15, but don't forget, it's taxable, so that knocks it back down to $5 or less.

If your taxes are $20,000, you could make $10. While I'm frugal in many many ways, I don't see that as worth worrying over when compared to the potential penalty if you forget to file on time.If your federal income tax bill is relatively small and your income is relatively low, so you aren't worried about AMT and the last minute regulations, then I agree that there isn't much to be gained by holding off filing.

On the other hand, if you make half-decent money, there is generally a very good likelihood that you could be affected by the AMT and/or by the last minute regulations that tend to be passed around the end of each calendar year. Crazytree's hilarious comment above notwithstanding (if he hadn't jumped in claiming to make a "very high income" and "no chance of being subject to the AMT" because he doesn't have a mortgage, which immediately exposed his lie, noone would have paid too much attention to his initial comment, which was only tangentially related to the discussion), you don't actually need to make a lot of money or have a lot of deductions to be affected by the AMT and by last minute tax regs, so it pays to wait until all the tax code changes are finalized and reflected in the calculations. Likewise, if you are receiving investment documentation or tax documentation related to business ventures, you'll have no choice but to wait, since you can't really predict what all the numbers on a K1 will look like, for instance.

The interest that you'd earn on underwithholding your taxes is just icing on your cake. Remember that you don't really have to have your taxes withheld ratably throughout the year. In most situations it is quite easy and perfectly legal to be very conservative with your tax withholdings at the beginning of the year and to then make up some of the anticipated shortage at the end of the year to avoid underpayment penalties. There have been a lot of posts on FW of people structuring their withholdings so that they ended up owing the IRS $20K-$30K in taxes with no or very miniscule underpayment penalties. Even if you average $20K at 3% (it's not difficult to get those rates, even in this environment) for a year, that's an extra $600 in taxable interest. It certainly won't make you rich but it'll buy a few cups of coffee, especially considering how easy it generally easy to get it and the fact that it's just icing on the cake.

olegos said: Xnarg said: To avoid a penalty, you have to withhold or make estimated payments of 90% of the prior year's tax.
Actually it's 100% of the prior year's tax (or even 110% in many cases, though looks like there are also some cases where it's 90%), or 90% of the current year's. Also to avoid the penalty by paying enough of the prior year's tax, you must also have made all your estimated tax payments on time if they were requested (and if you constantly underpay, they're likely to be requested).
Here are the details:
http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
"You will not owe the penalty if your 2008 tax return was for a tax year of 12 full months and any of the following applies.
1. You had no tax shown on your 2008 return and you were a U.S. citizen or resi- dent for all of 2008.
2. The total of lines 61, 62, and 69 on your 2009 return is at least 100% of the tax shown on your 2008 return (110% of that amount if you are not a farmer or fisher- man, your adjusted gross income (AGI) shown on your 2008 return was more than $150,000 (more than $75,000 if married filing separately for 2009), and item (3) below does not apply). Your estimated tax payments for 2009 must have been made on time and for the required amount.
3. The total of lines 61, 62, and 69 on your 2009 return is at least 90% of the tax shown on your 2008 return, your AGI shown on your 2008 return was less than $500,000 (less than $250,000 if married filing separately for 2009), and you certify on Form 2210 (or 2210-F for farmers and fishermen) that more than 50% of the gross income on your 2008 return was from a small business. A small business is one that had an average of fewer than 500 employ- ees for 2008. See Form 2210 (or 2210-F) and its instructions for details. Your esti- mated tax payments for 2009 must have been made on time and for the required amount.

The IRS will waive the penalty TIP to the extent any underpayment is due to adjustments to the in- come tax withholding tables be- cause of the making work pay credit. You must request a waiver by filing Form 2210 or 2210-F with your return."

I just checked my husband's paycheck, and it looks like I'm going to have to increase his withholding for December to avoid a penalty.

Wouldn't this be a perfect instance of where an installment savings account would actually be useful? Rather than having the amount withheld monthly to the IRS, take that same money and stick it in an installment savings account. Withhold just the minimum needed to meet the 100% of the past tax year.

Xnarg said: Remember that you have to pay 90% of last year's tax before Dec. 31.
Wrong on two counts (although it doesn't change your overall point):

1. As has been posted, it's either 90% or 100% or 110% of the last year's tax, with 100% seemingly the most likely case;

2. Estimated tax payments for 2009 can be made until Jan 15 2010.

(Me and/or my wife sometimes get a bonus in December, so it's difficult to estimate our taxes well in advance, so if by the EOY it looks like we're at less than 90% of this year's tax, I'm planning on making my last estimated tax payment in January, even though I've ignored the others during the year.)

olegos said: 2. Estimated tax payments for 2009 can be made until Jan 15 2010.What the IRS has told me is that if you miss a payment, there is no "make-up", period. Either you make the payment in time or don't bother making it until you file.

AMT Tax Patch

olegos said: Xnarg said: Remember that you have to pay 90% of last year's tax before Dec. 31.
Wrong on two counts (although it doesn't change your overall point):

1. As has been posted, it's either 90% or 100% or 110% of the last year's tax, with 100% seemingly the most likely case;That boosts my case, since the amount that can be held in an interest bearing account is less.

Crazytree said: LawDawgAtl, explain to me what AMT patches, specifically, I should be concerned about. Assume an AGI of $200K with less than $10k in business deductions, married filing jointly, maxed out IRAs and $150k in a credit union in a taxable account at 2.0%. No mortgage interest deduction, no student loan interest deduction, no dependents.You've been caught in an obvious lie about your income. Noone cares whether you make $20K or $20MM. Just stop lying about it. To explain why your lie is so obvious, you don't need to even be making anywhere near $200K to have to worry about AMT if a patch is delayed. Without an AMT patch, which is often not passed by Congress until late in the year and is not reflected in the IRS computers and in tax software until late January/February, there would be an excellent chance that you'd be hit with AMT if you were making half-decent money (doesn't even need to be a lot). Anyone who makes even half-decent money is acutely aware of this reality because every single year you have to wait to file to make sure that the AMT patch and a slew of other last minute regs that typically get passed at the end of each year is reflected in the software.

Once again, mortgage interest deduction has absolutely nothing to do with this discussion, since mortgage interest is and has always been deductible under the AMT. In your situation, the AMT would affect deductibility of your state income taxes (especially since you are in California with its very high state income taxes) and of certain business deductions.

Honestly in my situation, I would rather pay the AMT than my actual taxes...This is one of the more retarded statements that I've seen. You always pay the HIGHER of regular income taxes or the AMT. Again, for people with even half-decent income (doesn't need to be high at all), AMT is always an issue because they must wait until it is reflected in all the calculations and then run tax calculations under both systems. The only possible way for someone not to have to be concerned about the applicability of the AMT to his situation is if that person's income is fairly low. Once again, none of us care about your income or are trying to embarrass you. Just don't lie about it, especially when the lie here is so obvious and transparent.

Since we are also discussing filing early vs filing late, is it true that waiting till the last minute may reduce your chances of audit, since there are only so many returns the IRS can select for auditm and they have already been selected by 4/15?? Or is that just a myth?