4 ms·

Careful. Taxes in the US are pay-as-you-go. You can't just "pay the tax man in April." Well, you can, but you also have to pay him the penalty for failing to

by ibejoeb 14y ago

Careful. Taxes in the US are pay-as-you-go. You can't just "pay the tax man in April." Well, you can, but you also have to pay him the penalty for failing to pay throughout the year. See http://www.irs.gov/taxtopics/tc306.html http://www.irs.gov/taxtopics/tc306.html.

techiferous 14y ago
The "penalty", as I understand it, is neither a fine nor a record of wrongdoing, as paying at the end of the year is not illegal. The penalty is the IRS saying that it would like to have the interest back that it otherwise would have earned if you had paid earlier. As far as I understand, it's perfectly kosher to wait until the end of the year to make payments; you just have to make sure you have the money to actually pay then. Disclaimer: I am not an accountant nor do I have expertise on this matter.
- ibejoeb 14y ago
  It's a little more complicated than that, and it is a penalty. You may also owe interest, and they are two separate things (and interest is statutory, so you're really not negotiating there). There are multiple penalties for underpayment and nonpayment of federal taxes. If you're an employee and not withholding enough (because you have other income or AMT for example), you should be making estimated payments to cover the difference. Your employer is also subject to penalties if it fails to withhold and pay the gov't employment taxes (social security and medicare), and it's usually 100%. If you are self-employed, you need to make estimated payments. tl;dr: the gov't has cashflow problems, too, and doesn't like to issue t-bonds to finance its receivables.
nknight 14y ago
There is an exception as mentioned there. If you pay an amount equal to 100% of the previous year's liability (110% if your AGI is over $150k), it doesn't matter how much more you owe in April. (I personally ended up with a 2011 tax liability that was something like 160% of my 2010 liability, but I'd paid estimated taxes equal to my 2010 liabilities. So I had to cut the IRS a pretty big check in April, but had no penalties.)
- ibejoeb 14y ago
  Right, you made estimated payments, and it was exactly the right way. You paid based on a reasonable estimation. The point is it's pretty hard to just avoid paying taxes all year (either by plain not paying your self-employment taxes or misrepresenting your situation on a W-4), bank it, and come out clean.
  - chives 14y ago
    It depends. You argument is very narrow. There are LOTS of ways to avoid paying your fair share of taxes, it depends on the situation and where the cash flows are coming from. As for the Zuckerburg situation, what he did is pretty common. Though I have heard of an alternative to selling those shares, someone in his position could use a portion of his facebook shares as leverage and get a loan to pay the tax man, then said person could pay back the loan with the cash flows generated by the stock. Though in that scenario the interest on the loan and the cash flows of the shares would have to be favorable (i e, a finance question). Additionally, I have heard that getting a loan like that is difficult (something to do with eligibility and/or regulation), but don't quote me on that last part I am not that familiar with it myself.
    - emiranda 14y ago
      Can you actually explain what Zuckerburg did? I'm quite interested.
    - ibejoeb 14y ago
      No, it doesn't depend. And who said anything about fair? I'm talking about obligated and compelled. > get a loan to pay the tax man Yeah, so he pays the taxes with somebody else's money. Tax man gets paid, right? Tell me the scenario where a guy pays no taxes and isn't in trouble. This is empirically verifiable, but I don't recommend conducting the research. Sorry for the tangent folks. I'm not commenting on Zuck's situation. The comment about not paying taxes all year is just plain wrong, and I would hate for someone to try it and get dinged. This is especially important for the newer startup people that don't have the usual single W-2 situation. That's all.

by ibejoeb 14y ago

techiferous 14y ago

The "penalty", as I understand it, is neither a fine nor a record of wrongdoing, as paying at the end of the year is not illegal. The penalty is the IRS saying that it would like to have the interest back that it otherwise would have earned if you had paid earlier. As far as I understand, it's perfectly kosher to wait until the end of the year to make payments; you just have to make sure you have the money to actually pay then. Disclaimer: I am not an accountant nor do I have expertise on this matter.

ibejoeb 14y ago
It's a little more complicated than that, and it is a penalty. You may also owe interest, and they are two separate things (and interest is statutory, so you're really not negotiating there). There are multiple penalties for underpayment and nonpayment of federal taxes. If you're an employee and not withholding enough (because you have other income or AMT for example), you should be making estimated payments to cover the difference. Your employer is also subject to penalties if it fails to withhold and pay the gov't employment taxes (social security and medicare), and it's usually 100%. If you are self-employed, you need to make estimated payments. tl;dr: the gov't has cashflow problems, too, and doesn't like to issue t-bonds to finance its receivables.

nknight 14y ago

There is an exception as mentioned there. If you pay an amount equal to 100% of the previous year's liability (110% if your AGI is over $150k), it doesn't matter how much more you owe in April. (I personally ended up with a 2011 tax liability that was something like 160% of my 2010 liability, but I'd paid estimated taxes equal to my 2010 liabilities. So I had to cut the IRS a pretty big check in April, but had no penalties.)

ibejoeb 14y ago
Right, you made estimated payments, and it was exactly the right way. You paid based on a reasonable estimation. The point is it's pretty hard to just avoid paying taxes all year (either by plain not paying your self-employment taxes or misrepresenting your situation on a W-4), bank it, and come out clean.
- chives 14y ago
  It depends. You argument is very narrow. There are LOTS of ways to avoid paying your fair share of taxes, it depends on the situation and where the cash flows are coming from. As for the Zuckerburg situation, what he did is pretty common. Though I have heard of an alternative to selling those shares, someone in his position could use a portion of his facebook shares as leverage and get a loan to pay the tax man, then said person could pay back the loan with the cash flows generated by the stock. Though in that scenario the interest on the loan and the cash flows of the shares would have to be favorable (i e, a finance question). Additionally, I have heard that getting a loan like that is difficult (something to do with eligibility and/or regulation), but don't quote me on that last part I am not that familiar with it myself.
  - emiranda 14y ago
    Can you actually explain what Zuckerburg did? I'm quite interested.
  - ibejoeb 14y ago
    No, it doesn't depend. And who said anything about fair? I'm talking about obligated and compelled. > get a loan to pay the tax man Yeah, so he pays the taxes with somebody else's money. Tax man gets paid, right? Tell me the scenario where a guy pays no taxes and isn't in trouble. This is empirically verifiable, but I don't recommend conducting the research. Sorry for the tangent folks. I'm not commenting on Zuck's situation. The comment about not paying taxes all year is just plain wrong, and I would hate for someone to try it and get dinged. This is especially important for the newer startup people that don't have the usual single W-2 situation. That's all.