Legal Question in Tax Law in California

Do I have to pay estimated taxes for 2004?

My employer terminated our ESOP and I received the full distribution of approx 33K -less the 6K fed witholding. Unfortunately, I was not fully informed of the ramifications and did not roll-over any of it but used it instead to pay off high interest credit card & other debts.

Although my actual wages for 2003 were about 10% less than my wages for 2002 - the addition of the 33K in ''ESOP'' dollars made my gross income for 2003 jump up 36% (from 70K to 95K!)

I filed our taxes using Turbo Tax for the web and had to deplete our savings acct. to pay the 6K in taxes and penalties. When I printed out the 1040 & 540 forms for my records I found instructions and vouchers for making estimated tax payments for 2004 - The first payment being due April 15th!

This is the first year we have had to PAY additional taxes -typically we have enough itemized deductions to get between $1000-$2000 back.

So why then, because of a one-time early distibution would I have to make estimated tax payments this year? We simply can't afford to make these estimated payments - especially since they're based on an amount I couldn't even dream of earning in 2004!

What can I do at this point?

Thanks in Advance,

Zaiga


Asked on 4/12/04, 12:31 pm

1 Answer from Attorneys
Ken Koenen Koenen & Tokunaga, P.C.

Re: Do I have to pay estimated taxes for 2004?

You are not required to make the estimated payments if you believe (as it appears you would be correct) that your tax obligations would not be as high next year.

You may also have been able to avoid the penalty that you paid, depending on when you took the distribution. TurboTax asumes that you received the entire amount over the course of the year rather than in one lump some.

Read more
Answered on 4/12/04, 2:07 pm


Related Questions & Answers

More Tax and Taxation Law questions and answers in California