Tax Question

[LivingAlmostLarge]

Okay, do you get hit with a tax penalty if you underpaid but paid what you owed from last year? Is this the same for the state? I am getting a refund for the federal (ya stupid I know), but now I think, not confirmed I owe big on the state. I paid an extra $1k to the state 1/15 because we usually owe, so I tossed more in, because I thought we were off doing an off the cuff estimate.

I live in MA and it's a flat 5.3% tax so I took our income and paid 5%, but turns out, we owe about $3k more. Sigh.

Does anyone know how it works out? How do you do your federal taxes if you owe more? Do you take your 2007 state taxes owe and apply to 2008 federal taxes?

If I keep slamming my head on the table I wonder if it will help?

[aida2003]

We've never owed more than $1k yet.
But in general it goes like this: if you got a refund last year, you don't get penalized even if this year you have to pay more than $1k. But if you owed last year and also you have to pay more than $1k this year, then this year you have to calculate the penalty. That's how it is for Federal and our NC taxes.

The IRS always has tax tables for next year. Here's for 2008: Reference Room. I'll do some planning in April when we know for sure whether DH will get a bonus and how much. I think it's much harder to do next year's tax planning for people with very variable income.

OK, I did some rambling but now I think that it's not what you're trying to find out. If so, sorry....

[sweeps]

Not sure if I'm answering the original question or not, but as I mentioned in another thread, if you do not withhold enough during the year, you may have to pay back interest and penalties to the IRS, even if you pay your full bill before April 15th.

As for Massachusetts law, sorry, don't know.

[MonkeyMama]

I don't know about MA specifically. In general, for Federal and California, if you pay in your last years' tax amount, you are free from penalty. I would assume most states would be the same. But you might want to look up MA tax web site - they usually call it "safe harbor" - what you can pay in and not owe penalty. So if you do a search for "safe harbor" on their site you might find the specific MA rules.

It's one of the few tax payment rules that can end up in your favor.

[LivingAlmostLarge]

So do i get to deduct off what I paid to MA in 2008 for my 2007 bill in 2007?Or do I need to wait until 2008?

Thanks. Basically will I get a bigger deduction on the federal?

I still want to bang my head on the table. This is so frustrating.

[MonkeyMama]

I didn't catch that part the first time.

You get to deduct what you pay in 2008, on your 2008 tax return. Assuming you don't get hit by AMT anyway...

[LivingAlmostLarge]

So even if I pay 2007 in 2008, then I write it off in 2008? Not 2007?

[safari]

So if my understanding is correct, if I owe state taxes for 2007 and I send a check now (2008) with my 2007 state tax return, I can deduct that amount from my federal tax return for 2008, which I will be filing next year? In other words, I will add the state taxes I owe from 2007 and paid in 2008 to the state taxes that were deducted from my paychecks in 2008 and deduct the total amount on my 2008 tax return.

[MonkeyMama]

So even if I pay 2007 in 2008, then I write it off in 2008? Not 2007?

Yes, taxes are primarily cash basis. You report the income when you receive it. You get the deduction when you pay it.

[MonkeyMama]

So if my understanding is correct, if I owe state taxes for 2007 and I send a check now (2008) with my 2007 state tax return, I can deduct that amount from my federal tax return for 2008, which I will be filing next year? In other words, I will add the state taxes I owe from 2007 and paid in 2008 to the state taxes that were deducted from my paychecks in 2008 and deduct the total amount on my 2008 tax return.

yes. ...

[LivingAlmostLarge]

So in 2008 my paid state income taxes will be higher than what I really owed because I am paying 2007 owing and 2008?