Publication 505 - Tax Withholding And Estimated Tax Page 28

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Larry’s salary . . . . . . . . . . . . . . . . . . .
$ 6,900
Standard Deduction Tables. This is smaller than
Illustrated Examples
Unemployment compensation . . . . . . . . .
600
their expected itemized deductions, so they
Anne’s net profit from self-employment . . .
3,000
enter $8,300 on line 2 of the worksheet. They
Net rental income . . . . . . . . . . . . . . . .
– 0 –
subtract the amount on line 2 from the amount
The following examples show how to figure esti-
Interest income . . . . . . . . . . . . . . . . . .
500
on line 1 and enter the result, $64,996, on line 3.
Dividends . . . . . . . . . . . . . . . . . . . . .
462
mated tax payments under the regular install-
They enter their deduction for exemptions,
Total . . . . . . . . . . . . . . . . . . . . . . . . $11,462
ment method and under the annualized income
$6,000, on line 4. After subtracting this amount,
installment method.
They also take into account the following
their expected taxable income on line 5 is
items for the period:
$58,996.
Example 2.9:
Adjustment to income for IRA contributions . .
$ 150
Regular Installment Method
Expected taxes and credits. The Joneses
Itemized deductions . . . . . . . . . . . . . . . .
1,200
use the 2002 Tax Rate Schedule Y – 1 at the end
Withholding . . . . . . . . . . . . . . . . . . . . .
1,350
Early in 2002, Anne and Larry Jones figure their
of this chapter to figure their expected income
estimated tax payments for the year. They ex-
tax, and enter $9,724 on line 6 of the worksheet.
Annualized adjusted gross income. Before
pect to receive the following income during
They do not expect to owe any other taxes that
the Joneses figure their adjusted gross income
2002:
would be entered on lines 7 or 12, or have any
for the period, they first figure Anne’s self-em-
credits that would be entered on lines 9 or 13b,
ployment tax in Section B, and then her adjust-
Larry’s salary . . . . . . . . . . . . . . . . . . . $29,200
so they leave those lines blank.
Unemployment compensation . . . . . . . . .
600
ment to income for self-employment tax.
The Joneses’ total expected tax on line 13c,
Anne’s net profit from self-employment . . .
38,500
On line 27 of Section B, they enter $2,771,
after adding Anne’s self-employment tax, is
Net rental income . . . . . . . . . . . . . . . .
2,671
which is Anne’s net profit from self-employment
$15,164.
Interest income . . . . . . . . . . . . . . . . . .
2,300
for the period, $3,000, multiplied by .9235. The
Dividends . . . . . . . . . . . . . . . . . . . . .
3,745
Estimated tax. The Joneses multiply their to-
prorated social security tax limit is preprinted on
Total . . . . . . . . . . . . . . . . . . . . . . . . $77,016
tal expected tax by 90% and enter $13,648 on
line 28. She has no social security wages, so
They also use the following expected items
line 14a of the worksheet. They enter their 2001
they enter zero on line 29, and $21,225 on line
to figure their estimated tax:
tax on line 14b. Their required annual payment
30. Anne’s annualized social security tax on line
32 is $1,374, ($2,771 × .496). Her annualized
on line 14c is the smaller amount, $13,648.
Adjustment to income for IRA contributions
$ 1,000
medicare tax on line 34 is $321 ($2,771 × .116).
They enter Larry’s expected withholding,
Itemized deductions . . . . . . . . . . . . . . .
8,300
Deduction for exemptions ($3,000 × 2) . . .
$5,795, on line 15 and subtract it from their
Her total annualized self-employment tax on line
6,000
2001 total tax . . . . . . . . . . . . . . . . . . .
15,220
required annual payment. Their estimated tax
35a is $1,695. They enter that amount on line 13
Withholding . . . . . . . . . . . . . . . . . . . .
5,795
on line 16 is $7,853.
of Section A.
The Joneses figure their adjustment to in-
The Joneses plan to file a joint return. They
Required estimated tax payment. The
come for Anne’s self-employment tax on lines
use the 2002 Estimated Tax Worksheet in-
Joneses’ first estimated tax payment is due April
35b and 35c. They figure the amount to be $212
cluded in Form 1040 – ES to figure their esti-
15, 2002. They enter one-fourth of their esti-
($1,695 ÷ 8). They subtract that amount and
mated tax payments. Their filled-in worksheet
mated tax, $1,964, on line 17 of the worksheet
their $150 IRA contributions from their $11,462
follows this discussion.
and on their Form 1040 – ES payment-voucher
total income and enter their adjusted gross in-
due April 15. They mail the voucher with their
Expected adjusted gross income. Anne can
come for the period, $11,100, on line 1 of Sec-
payment to the address shown for their area in
claim an income tax deduction for one-half of her
tion A. They multiply that amount by 4 and enter
the Form 1040 – ES instructions, and record the
their annualized adjusted gross income,
self-employment tax as a business expense. So
payment on the Record of Estimated Tax Pay-
$44,400, on line 3.
before the Joneses figure their expected ad-
ments in the instructions.
justed gross income, they figure Anne’s ex-
If their estimated tax does not change during
Annualized taxable income. The Joneses
pected self-employment tax, as follows:
the year, the Joneses also will pay $1,963 esti-
figure their annualized itemized deductions
mated tax by June 17 and September 16, 2002,
($1,200 × 4) on lines 4 through 6 of Section A.
Filled-in Worksheet 2.2 for Anne Jones
and January 15, 2003.
(Example 2.9)
Because the result is smaller than their standard
deduction, they enter their $7,850 standard de-
1. Enter your expected income and profits
Example 2.10:
duction on line 8. After subtracting that amount
subject to self-employment
Annualized Income
and their $6,000 deduction for exemptions, the
tax . . . . . . . . . . . . . . . . . . . . . . . $38,500
2. Multiply the amount on line 1
Joneses’ annualized taxable income on line 11
Installment Method
by .9235 . . . . . . . . . . . . . . . . . . . $35,555
is $30,550.
3. Multiply the amount on line 2
The facts are the same as in Example 2.9, ex-
by .029 . . . . . . . . . . . . . . . . . . . .
$1,031
Annualized taxes and credits. The Joneses
cept that the Joneses do not expect to receive
4. Social security tax maximum income . . $84,900
use the 2002 Tax Rate Schedule Y – 1 at the end
their income evenly throughout the year. Anne
5. Enter your expected wages (if subject to
of this chapter to figure their annualized income
social security tax) . . . . . . . . . . . . .
– 0 –
expects to receive the largest portion of her
6. Subtract line 5 from line 4 . . . . . . . . . $84,900
tax, $3,983, on line 12 of Section A.
self-employment income during the last few
Note. If line 6 is zero or less, enter – 0 –
The Joneses have no other taxes or credits
months of the year, and the Joneses’ rental
on line 8 and skip to line 9.
for the period that would be entered on lines 14
income is from a vacation home rented only in
7. Enter the smaller of line 2 or line 6 . . . $35,555
or 16, so they leave those lines blank and enter
the summer months.
8. Multiply the amount on line 7 by .124 . .
$4,409
$5,678 ($3,983 + $1,695) on lines 15 and 17.
After completing their 2002 Estimated Tax
9. Add line 3 and line 8. Enter the result
This is their annualized total tax.
here and on line 11 of your 2002
Worksheet, the Joneses decide to use the annu-
Estimated Tax Worksheet . . . . . . . . .
$5,440
alized income installment method to see if they
Required estimated tax payment. The
10. Multiply the amount on line 9 by .50.
can pay less than $1,964 estimated tax for one
This is your deduction for one-half of
Joneses’ annualized income installment on line
or more payment periods. They complete the
21 of Section A is $1,278 ($5,678 × 22.5%). On
your self-employment tax . . . . . . . . .
$2,720
2002 Annualized Estimated Tax Worksheet
lines 22 and 24 they enter $3,412, one-fourth of
The Joneses enter $35,555 on the dotted
(Worksheet 2.10) in this chapter. Their filled-in
their $13,648 required annual payment under
line and $5,440 in the blank on line 11 of the
worksheet follows their filled-in 2002 Estimated
the regular installment method of figuring esti-
worksheet. They subtract one-half of that
Tax Worksheet at the end of this example.
mated tax payments (from line 14c of the 2002
amount, $2,720, and their $1,000 adjustment for
Estimated Tax Worksheet). Because $1,278 is
IRA contributions from their $77,016 total in-
smaller, they enter that amount on lines 25a and
come to find their expected adjusted gross in-
First Period
25b.
come, $73,296. They enter that amount on line 1
On April 1, 2002, the Joneses complete the first
Larry’s total expected withholding for the
of the worksheet.
column of the worksheet for the period January
year is $5,795. The Joneses can treat
Expected taxable income. The Joneses find
1 through March 31. They had the following
one-fourth of that amount, $1,449, as paid on
their standard deduction, $7,850, in the 2002
income for the period:
April 16, or they can choose to use Larry’s actual
Page 28
Chapter 2 Estimated Tax for 2002

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