Thank you all for the helpful advice.

And yes, I'm going to consult with a tax professional but I
like to have enough understanding to make reasonably
intelligent decisions.

Dick

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Your tax obligations can be deferred, at least in part,
until next April 15 by use of the Installment Underpayment
rules in IRS form 2210 and possibly its Schedul AI.

First, if your total withholding this year is equal to your
taxes last year (110% of your last year's tax if your last
year's AGI was over $150,000), you will owe no penalty and
can pay all the added taxes next April. You can increase
your salary withholding to accomplish this.

If the above is insuficient, you can make up the difference
with an installment payment on September 15 for the
deficiency and you will have no penalty. You will have to
file form 2210 and Schedule AI with your tax return to prove
that the large extra income came in July rather than earlier
in the year. By applying the 31% withholding in the
quarter it occurred (instad of averaging it throughout the
year) it may decrease the amount of required September 15th
installment and defer it to next January.

I presume you are still working and have normal withholding
on your salary. If you are unemployed you may want to
apply salary withholding in the quarter it was withheld
also, instead of averaging it.

ed

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

DickK <rwk999[at]hotmail-dot-com.no-spam.invalid> wrote:

- quote -

You're more than close, you've got it exactly correct. You
need to send an appropriately sized check by Sep. 15 2005 to
cover the estimated taxes. In theory, that check needs to
be not only big enough to pay taxes on this one-time income,
but is sized to suggest you will see the same annualized
level of income in the fourth period (Sep 1 -- Dec 31).
Otherwise there will be penalties. This is called the
"annualized income method". Look at form 2210 and its
instructions for the gory details.

That being said, you're actually better off having realized
the income in the third period, than the first or second.

What you don't pay now, you should pay by Jan 15. What you
don't pay then, pay by April 15, but if you let it slide
till then the penalties will start to mount, as will the
probability of having to do a complex calculation on form
2210 to reduce the penalties from the default method.

Good luck

Steve

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"DickK" <rwk999[at]hotmail-dot-com.no-spam.invalid> wrote:

- quote -

Hire a professional to DO tax planning.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

You are sheltered from penalty for underpayment of tax as
long as you have paid in as much as was your total tax on
your 2004 tax return (112% if your AGI for 2004 exceeded
$150,000). Other shelters are that you have paid in at
least 90% of what will be your current year's tax OR, on the
bottom line of your 2005 return, you owe no more than
$1000.00. If you meet one of those, it would make little
sense to pay more in estimated tax than required. You can
put (whatever it is you'll owe) the money in some kind of
short term investment.

BTW, Income Averaging is out, with the exception of what
exists for some farmers. There may be other ways to reduce
your burden and there is still time for some planning. I'd
suggest you be in touch with a tax professional NOW to see
what options may be open to you, in your particular case.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Based on what (little) I know I think I'm in a position
where I need to send a $big$ check to the IRS for estimated
tax due this year. The trigger for this situation was the
acquistion in July of the company I work for. It was an all
cash acquisition that effected me three ways:

The company stock I held in a brokerage account was
purchased and is now there in cash.
The qualified ISO options I held were exercised and the net
paid out with NO withholding.
The non-qualified options I held were exercised and the net
paid out with withholding at 31%

Here's what I think the situation is
1. The tax implication of the first item is capital gains
tax at 15% (all stock having been held for > 1year).
2. The tax implication of the second item is a big ordinary
income hit that I'll owe taxes on and nothing so far has
been withheld.

I think all that means I need to send the IRS a big check
equal to 15% of estimated gain on the stock sale plus ~ 30%
of the amount realized in the qualified option transaction.

So, am I even close here? Are there any alternatives open to
me? Since this event represents a major spike in my typical
annual income (roughly triples it) can I (should I) income
average? Or...?

Any advice and counsel will be appreciated :!:

Thanks in advance -- Dick

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >