Chapter 15: Estimated Payment Requirements

To be a farmer for IRS purposes, at least __ of a taxpayer's gross income must be from farming.

2/3 -gross income line 9 Sch. F -gross income line 7 Form 4835 (farm rental) -gains from sale of draft, breeding, dairy, sporting livestock (losses ignored) -share of farm partnership, S-Corp.

An underpayment penalty for farmers is computed on the lesser of: 1. __ of the current year's tax less the amount paid by January 1st. OR 2. __% of the prior year's tax less the amount paid by January 1st.

2/3 100% (a rate set by law is then applied to the lesser of these two amounts)

What is the penalty for failure to file return when due?

5% per month or fraction thereof. Round up to nearest month - two months and two days = 3 months. max = 25%

There is a minimum penalty assessed for failure to file if the return is more than __ days late. This minimum penalty is the lesser of:

60 days Lesser of: $135 OR the tax due with the return

Non-farmers must have previously paid in the lesser of the following by the time they file their return: 1. __% of their current year's net tax liability OR 2. __% of their prior year's net tax liability

90% 100% special rule: if AGI for the prior year exceeds $150,000 - required to pay 110% of the prior year's tax instead of 100%.

Will the IRS ever waive a penalty for failure to pay tax when due?

Yes, for reasonable cause

The IRS is authorized to waive the estimated tax penalty for hardship reasons. Hardship is defined as_______.

death, serious illness, casualties, destruction of necessary records, etc. Simply not having sufficient funds to make a required payment is not considered a hardship.

For any month in which both the penalty for failure to file and the penalty for failure to pay tax when due apply, the penalty for failure to file is reduced by __________.

the penalty for failure to pay tax when due.

Generally, the quarterly payments for non-farmers must be made in four equal amounts and are due on (4 dates):

April 15th June 15th September 15th January 15th of the following year

For non-farmers, there is no early filing date (i.e. March 1st) which can be met to avoid the need for estimated payments. A non-farmer can however avoid making the January 15th estimated payment by filing a return and paying any tax due by ____.

January 31st. The previous three quarterly payments must still be made.

If a farmer opts to make one estimated payment by January 15th, what would be the required amount owed?

Lesser of: - 2/3 of their current year's net tax liability OR - 100% of their prior year's net tax liability

Will the IRS ever waive an interest penalty?

No

When calculating the tax liability for estimated payments, what type of credits reduce the total?

Refundable credits such as: -any earned income credit -Federal fuels tax credit -Additional child tax credit -Refundable American Opp. Credit -Net premium tax credit, Form 8812

When figuring farmer status for IRS purposes on a joint return, you [include/don't include] the income of both spouses in the gross income calculation.

include

A taxpayer who qualifies as a farmer in one tax year [is/is not] considered to be a farmer in the following year.

is

A taxpayer who fails to file a tax return or pay the tax by April 15th is subject to three additional charges. What are they?

1. a penalty for failure to file a return when due 2. a penalty for failure to pay the tax when due 3. interest on any unpaid tax still owed

The penalty for failure to pay tax when due will not apply to any balance due on a return filed by its extended due date if the amount due with the return is not more than __% of the total tax shown on Form 1040, line 61.

10%

List some reasons under which the IRS is authorized to waive the estimated tax penalty:

*********

The penalty for failure to pay tax when due is initially __% per month or fraction thereof. Calculated on tax due and unpaid at April 15th. The penalty increases to __% per month 10 days after the IRS gives notice of intention to levy upon the taxpayer's assets or the day on which demand for immediate payment is made.

0.5% 1% maximum penalty is 25% of the unpaid tax

What are the two additional situations in which a farmer or non-farmer will not owe a penalty for underpayment of estimated tax?

1. If the net tax liability on the current year's tax return is less than $1,000. (net tax less any withholding) 2. If a farmer had no net tax liability in the prior year. (withholding does not count here)

Taxpayers who qualify as farmers have two options concerning estimated taxes. What are they?

1. Make no estimated tax payments, file their tax return and pay any tax owed by March 1st. 2. Make one estimated tax payment by January 15th following the close of their tax year and file a return and pay any balance of tax due by April 15th.

What is the annualized income exception?

Allows taxpayers to determine quarterly estimates based on actual income earned to date.

Farmers are given the option of avoiding the estimated tax payment system. To do so, farmers have to file a tax return and pay any tax by _______. If farmers wait until _____ to file their return, they will fall under the estimated tax payment system.

March 1st April 15th