Publication 505 - Tax Withholding And Estimated Tax (Page 27 of 49) in pdf

First Period

come to find their expected adjusted gross in-

Illustrated Examples

come, $74,296. They enter that amount on line 1

On April 1, 2003, the Joneses complete the first

of the worksheet.

column of the worksheet for the period January

The following examples show how to figure esti-

1 through March 31. They had the following

Expected taxable income. The Joneses find

mated tax payments under the regular install-

income for the period:

their standard deduction, $7,950, in the 2003

ment method and under the annualized income

Standard Deduction Tables. This is smaller than

installment method.

Larry’s salary . . . . . . . . . . . . . . . .

$ 6,900

their expected itemized deductions, so they

Unemployment compensation . . . . .

600

enter $9,200 on line 2 of the worksheet. They

Example 2.9:

Anne’s net profit from

subtract the amount on line 2 from the amount

self-employment . . . . . . . . . . . . . .

3,000

Regular Installment Method

on line 1 and enter the result, $65,096, on line 3.

Net rental income . . . . . . . . . . . . .

– 0 –

They enter their deduction for exemptions,

Interest income . . . . . . . . . . . . . .

500

Early in 2003, Anne and Larry Jones figure their

$6,100, on line 4. After subtracting this amount,

Dividends . . . . . . . . . . . . . . . . . .

462

estimated tax payments for the year. They ex-

Total . . . . . . . . . . . . . . . . . . . . .

$11,462

their expected taxable income on line 5 is

pect to receive the following income during

They also take into account the following

$58,996.

2003:

items for the period:

Expected taxes and credits. The Joneses

Larry’s salary . . . . . . . . . . . . . . . . .

$30,200

Adjustment to income for IRA

use the 2003 Tax Rate Schedule Y – 1 at the end

Unemployment compensation . . . . . .

600

contributions . . . . . . . . . . . . . . . . .

$ 150

of this chapter to figure their expected income

Anne’s net profit from self-employment

38,500

Itemized deductions . . . . . . . . . . . .

1,200

tax, and enter $9,635 on line 6 of the worksheet.

Net rental income . . . . . . . . . . . . . .

2,671

Withholding . . . . . . . . . . . . . . . . . .

1,350

They do not expect to owe any other taxes that

Interest income . . . . . . . . . . . . . . .

2,300

Dividends . . . . . . . . . . . . . . . . . . .

3,745

would be entered on lines 7 or 12, or have any

Annualized adjusted gross income. Before

Total . . . . . . . . . . . . . . . . . . . . . .

$78,016

credits that would be entered on lines 9 or 13b,

the Joneses figure their adjusted gross income

They also use the following expected items

so they leave those lines blank.

for the period, they first figure Anne’s self-em-

to figure their estimated tax:

The Joneses’ total expected tax on line 13c,

ployment tax in Section B, and then her adjust-

after adding Anne’s self-employment tax, is

ment to income for self-employment tax.

Adjustment to income for IRA

$15,075.

On line 26 of Section B, they enter $2,771,

contributions . . . . . . . . . . . . . . .

$ 1,000

Itemized deductions . . . . . . . . . .

9,200

which is Anne’s net profit from self-employment

Estimated tax. The Joneses multiply their to-

Deduction for exemptions

for the period, $3,000, multiplied by .9235. The

($3,050 × 2) . . . . . . . . . . . . . . . .

tal expected tax by 90% and enter $13,568 on

6,100

prorated social security tax limit is preprinted on

line 14a of the worksheet. They enter their 2002

2002 total tax . . . . . . . . . . . . . . .

15,220

line 27. She has no social security wages, so

Withholding . . . . . . . . . . . . . . . .

5,792

tax on line 14b. Their required annual payment

they enter zero on line 28, and $21,750 on line

on line 14c is the smaller amount, $13,568.

29. Anne’s annualized social security tax on line

The Joneses plan to file a joint return. They

They enter Larry’s expected withholding,

31 is $1,374, ($2,771 × .496). Her annualized

use the 2003 Estimated Tax Worksheet in-

$5,792, on line 15 and subtract it from their

medicare tax on line 33 is $321 ($2,771 × .116).

cluded in Form 1040 – ES to figure their esti-

required annual payment. Their estimated tax

Her total annualized self-employment tax on line

mated tax payments. Their filled-in worksheet

on line 16 is $7,776.

34a is $1,695. They enter that amount on line 13

follows this discussion.

of Section A.

Required estimated tax payment. The

Expected adjusted gross income. Anne can

The Joneses figure their adjustment to in-

Joneses’ first estimated tax payment is due April

claim an income tax deduction for one-half of her

come for Anne’s self-employment tax on lines

15, 2003. They enter one-fourth of their esti-

self-employment tax as a business expense. So

34b and 34c. They figure the amount to be $212

mated tax, $1,944, on line 17 of the worksheet

before the Joneses figure their expected ad-

($1,695 ÷ 8). They subtract that amount and

justed gross income, they figure Anne’s ex-

and on their Form 1040 – ES payment-voucher

their $150 IRA contributions from their $11,462

pected self-employment tax, as follows:

due April 15. They mail the voucher with their

total income and enter their adjusted gross in-

payment to the address shown for their area in

come for the period, $11,100, on line 1 of Sec-

Filled-in Worksheet 2.2 for Anne Jones

the Form 1040 – ES instructions, and record the

tion A. They multiply that amount by 4 and enter

(Example 2.9)

payment on the Record of Estimated Tax Pay-

their annualized adjusted gross income,

ments in the instructions.

$44,400, on line 3.

1. Enter your expected income and

If their estimated tax does not change during

profits subject to self-employment

Annualized taxable income. The Joneses

the year, the Joneses also will pay $1,944 esti-

tax . . . . . . . . . . . . . . . . . . . .

$38,500

figure their annualized itemized deductions

mated tax by June 16, September 16, 2003, and

2. Multiply the amount on line 1

($1,200 × 4) on lines 4 through 6 of Section A.

January 15, 2004.

by .9235 . . . . . . . . . . . . . . . .

$35,555

Because the result is smaller than their standard

3. Multiply the amount on line 2

deduction, they enter their $7,950 standard de-

by .029 . . . . . . . . . . . . . . . . .

$1,031

Example 2.10:

4. Social security tax maximum

duction on line 8. After subtracting that amount

Annualized Income

income . . . . . . . . . . . . . . . . .

$87,000

and their $6,100 deduction for exemptions, the

Installment Method

5. Enter your expected wages (if

Joneses’ annualized taxable income on line 11

subject to social security tax) . . .

– 0 –

is $30,350.

6. Subtract line 5 from line 4 . . . . .

$87,000

The facts are the same as in Example 2.9, ex-

Note. If line 6 is zero or less, enter – 0 –

Annualized taxes and credits. The Joneses

cept that the Joneses do not expect to receive

on line 8 and skip to line 9.

use the 2003 Tax Rate Schedule Y – 1 at the end

their income evenly throughout the year. Anne

of this chapter to figure their annualized income

7. Enter the smaller of line 2 or line 6

$35,555

expects to receive the largest portion of her

8. Multiply the amount on line 7 by

tax, $3,953, on line 12 of Section A.

self-employment income during the last few

.124 . . . . . . . . . . . . . . . . . . .

$4,409

The Joneses have no other taxes or credits

months of the year, and the Joneses’ rental

9. Add line 3 and line 8. Enter the

for the period that would be entered on lines 14

income is from a vacation home rented only in

result here and on line 11 of your

or 16, so they leave those lines blank and enter

the summer months.

2003 Estimated Tax Worksheet

$5,440

$5,648 ($3,953 + $1,695) on lines 15 and 17.

10. Multiply the amount on line 9 by

After completing their 2003 Estimated Tax

This is their annualized total tax.

.50. This is your deduction for

Worksheet, the Joneses decide to use the annu-

one-half of your self-employment

alized income installment method to see if they

Required estimated tax payment. The

tax . . . . . . . . . . . . . . . . . . . .

$2,720

can pay less than $1,944 estimated tax for one

Joneses’ annualized income installment on line

21 of Section A is $1,271 ($5,648 × 22.5%). On

or more payment periods. They complete the

The Joneses enter $35,555 on the dotted

2003 Annualized Estimated Tax Worksheet

line and $5,440 in the blank on line 11 of the

lines 22 and 24 they enter $3,392, one-fourth of

(Worksheet 2.10) in this chapter. Their filled-in

worksheet. They subtract one-half of that

their $13,568 required annual payment under

worksheet follows their filled-in 2003 Estimated

amount, $2,720, and their $1,000 adjustment for

the regular installment method of figuring esti-

Tax Worksheet at the end of this example.

IRA contributions from their $78,016 total in-

mated tax payments (from line 14c of the 2003

Chapter 2 Estimated Tax for 2003

Page 27

Publication 505 - Tax Withholding And Estimated Tax Page 27

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