The last thing most taxpayers want to discover at tax-filing time is that they still owe the IRS a large sum of money. A tax projection can show you where you stand with your income taxes — and highlight areas where you might be able to reduce your tax exposure with some planning.
Review This Year’s Transactions
As a preliminary planning step, take a few minutes to review your 2011 financial transactions — both completed and anticipated — for new items that could affect your income taxes. Examples include:
Selling investments held outside tax-deferred accounts
Selling real estate
Converting to a Roth IRA (or a designated Roth account inside an employer’s plan)
Taking a distribution from an employer’s retirement plan (or a traditional IRA) and not rolling it over
Starting or selling a business
Exercising stock options
Receiving a large sales commission or bonus
Buying a home
See If Tax Payments Are on Track
The IRS can assess penalties if you don’t pay enough income taxes during the year through payroll withholding and/or equal quarterly installments of estimated tax. As part of your planning, you’ll want to see if your tax payments are on track. In general, you should aim to pay at least (1) 90% of your projected 2011 tax or (2) 100% of your 2010 tax. However, the required percentage of your 2010 tax is 110% instead of 100% if your 2010 adjusted gross income (AGI) is more than $150,000 ($75,000 if you are a married taxpayer filing separately).
What should you do if you need to play catch up for 2011? As an employee, your best option may be to have your employer withhold more tax from your pay for the rest of the year. The IRS generally assumes that withholding tax is paid in equal amounts on each quarterly deadline, even if more is withheld during the last quarter of the year. If you aren’t employed, you can pay more in estimated taxes — but you might still owe a penalty unless you can show that your estimated payments for each period were sufficient using the “annualized income” method.
Click here for a worksheet you can use to estimate your 2011 taxable income.
2011 INCOME-TAX RATES
Filing Status |
Rate |
Taxable |
Single |
10% |
$0 – 8,500 |
15% |
$8,501 – 34,500 |
|
25% |
$34,501 – 83,600 |
|
28% |
$83,601 – 174,400 |
|
33% |
$174,401 – 379,150 |
|
|
35% |
Over $379,150 |
Head of household |
10% | $0 – 12,150 |
15% |
$12,151 – 46,250 |
|
25% |
$46,251 – 119,400 |
|
28% |
$119,401 – 193,350 |
|
33% |
$193,351 – 379,150 |
|
35% |
Over $379,150 |
|
Married
filing
jointly |
10% |
$0 – 17,000 |
15% |
$17,001 – 69,000 |
|
25% |
$69,001 – 139,350 |
|
28% |
$139,351 – 212,300 |
|
33% |
$212,301 – 379,150 |
|
|
35% |
Over $379,150 |
Married filing separately |
10% |
$0 – 8,500 |
15% |
$8,501 – 34,500 |
|
25% |
$34,501 – 69,675 |
|
28% |
$69,676 – 106,150 |
|
33% |
$106,151 – 189,575 |
|
35% |
Over $189,575 |
