How to best take care of tax liability

[GrimJack]

Roughly speaking, setting up an installment agreement will cost $120 fee (that goes to the private sector company actually carrying the debt), failure to pay penalty of .5% per month (reduced to .25% when in an agreement) and 3% per year interest (compounded daily) this is about 7-9% per year. Pay as much as you can when you file; when you get the letter saying that you owe, call and ask for a 120 day extension - this will give about 4 months to come up with the rest of the money. An installment agreement is a last resort since you will owe about 10% up front that does not even apply to your debt.
If at the end of the 120 extension, you have not retired the debt then put what is left on your CC. I am not a tax professional but these are the options I try to get across to the people who call; there are probably better ways to work this out.
Check out the payroll calculator to help you with this years withholding.

[hamchan]

I completly forgot we can file an extension. We could likely pay it off before the extension is up.

[MonkeyMama]

A couple of quick comments:

I would not pay estimated taxes. It seems it would be far easier just to have more withheld from your paychecks.

Calling and asking for an extension to pay is not the same as a normal extension of time to file. (Regular 6 month extensions that everyone gets, are just for more time to file the tax return. Taxes are still due April 15th). You may know this, but wanted to be clear on that. You will have to call and ask for this particular extension.

Safe harbor is as long as you paid in 90% of your tax already (from withholding) OR as long as you paid in 100% of 2012's tax liability. It's either/or - you don't have to do both. Whatever is the smaller number, and then you would not owe a penalty.

[hamchan]

Good lord, this s--- is confusing. This may be the year that we use a pro. DH talked to a friend of his who is a CPA, and it looks like we should be able to claim an American Opportunity credit on the certificate course he took, plus the cost of the textbook, which should bring the total damage down to somewhere around 600 to 700.