Estimated Taxes

Avoid Costly Surprises for Those with Nonwage Income

If you have nonwage income that is not subject to withholding, you’ll probably owe some tax.  If so, you are required to pay this tax to cover your tax liability through quarterly estimated tax payments or face underpayment penalties and interest.

Here are some tips on how to avoid estimated tax underpayment penalties at the end of this year and minimize the burden of quarterly taxes for 2014…

Nonwage income includes…

  • Interest and dividend income
  • Capital gains
  • Business income
  • Rental income
  • Gambling winnings
  • Taxable distributions from an IRA or pension plan
  • Social security benefits
  • Other income from non-wage sources

When you expect to owe $1,000 or more when you file your tax return, you should pay estimated taxes.

To avoid underpayment penalties, estimated tax payments must be large enough so that when combined with wage withholding they total at least…

  • 90% of the tax shown on your current individual income tax return, or
  • 100% of the tax that was shown on the prior year (110% if the prior year’s adjusted gross income exceeded $150,000 on a single or joint return, $75,000 if married filing separately).

The estimated taxes are generally paid in four quarterly estimated tax payments of equal size with due dates of April 15, June 15, September 15 and January 15 of the following year.

The penalty for underpayment is the IRS interest rate, which changes quarterly and is 3% for the second quarter of 2014.  Payments are made by filing the IRS Form 1040-ES voucher, Estimated Tax for Individuals, or electronically through the IRS’s Electronic Federal Tax Payment System (EFTPS).


With the high cost of medical care more people are now able to deduct on their tax return unreimbursed medical expenses.  If you plan to claim a deduction for your medical and dental expenses you must be able to itemize your deductions on Schedule A and your medical and dental expenses must exceed 10 percent of your adjusted gross income (the threshold is 7.5% if you or your spouse is age 65 or older and this exception will apply through 2016.)

Even if your medical and dental expenses were incurred in a previous year and paid in the current year, you can still deduct them in the current year as long as you have accurate records of those expenses.  Include medical and dental expenses you paid for yourself, your spouse and your dependents.  There may be some exceptions that apply, such as, expenses reimbursed by insurance or other sources don’t qualify as a deduction.

Deductible medical and dental expenses must be mainly for diagnosing, treating, easing or preventing disease.  Medical expenses include…

  • Doctors and dentists
  • Prescription medicines
  • Qualified long-term care services
  • Medical insurance premiums
  • Eyeglasses, equipment and supplies
  • Limited amounts for qualified long-term care insurance
  • Transportation costs to and from medical care, the deduction is 24 cents per mile for 2014.

No double dipping.  If you have paid your medical and dental expenses with monies from your Health Savings Account or Flexible Spending Arrangements, you can’t deduct the amounts paid from those plans.


Create estate tax savings by giving a minority interest in your business to family members.  For estate tax purposes the value of a minority interest in a closely held business is often discounted 30% to 40% due to the lack of marketability and lack of management control.


Most financial planners agree about the ten most common financial planning errors people make.  Here’s the list.

  1. Failing to plan retirement financing.
  2. Failing to carry an “umbrella” policy to protect against risks not covered in other policies.
  3. Investing too much in one stock, usually the employer’s stock.
  4. No disability insurance or too little disability insurance.
  5. Holding investments which are not productive.
  6. No will or an outdated will.
  7. Failing to use a short term trust to save taxes.
  8. Investing in unwise or unnecessary tax shelters.
  9. Relying on variable income to meet fixed expenses.
  10. Failing to coordinate estate planning with personal financial planning.


Tax loophole.  Shift income to low-tax-bracket family members by structuring your business as a pass-through entity – for example, an S corporation, partnership, or limited liability company.  The income each family member would report on their tax return is proportionate to their percentage of ownership.


Today, more than ever, it’s vital not to take unnecessary credit risks.  In addition to Dun & Bradstreet’s credit information services, you can get even more complete information from credit agencies that specialize in certain industries.  Retailing, the garment industry, and automotive parts are some of the businesses with credit agencies that offer reliable information developed by industry experts.

Do Your Own Credit Investigation.

A call to the customer’s bank can be very helpful.  A loan officer will usually give you an idea of the company’s average account balance, the company’s borrowing history, whether loans are secured or unsecured (unsecured loans indicate excellent credit standing), which of the company’s assets have been used as collateral, and whether the bank has liens against key assets such as accounts receivable.

You can also ask the company for a financial statement.  Many companies will not give this information to credit agencies to keep it from their competitors.  However, if a company knows your inquiry is legitimate and its credit is good, it should be willing to supply a financial statement and any other credit information you need.

You can also ask the company for the names of some of its suppliers.  Most suppliers will gladly tell you how much credit they extend the customer and whether the customer pays promptly.

You lawyer can do a lien search of the county clerk’s records for liens that might be placed on a company’s assets because of failure to pay its bills.  IRS liens will also show up in a search.



To deduct the costs of a job-related move, your new place of work must be at least 50 miles more than the distance between your former residence and your old place of work.  In addition, you must work a minimum of 39 weeks in the 12 months following your arrival at your new location.  The 39 weeks don’t have to be consecutive, and you don’t have to work for only one employer.

You can deduct the expenses that are reasonable for moving your personal property (furniture, appliances, cars, and personal effects) and that of other members of your household as well as travel expenses for you and your family to get to your new location (including lodging).

You have the option of deducting your car travel by using either your actual expenses for gas, oil, parking fees, and tolls you pay to move or the standard mileage rate of 23.5 cents a mile.  You must keep an accurate record of each expense if you elect to deduct the actual expenses.

An important feature of deductible moving expenses is that they are not subject to the 2% of Adjusted Gross Income limitation on miscellaneous itemized deductions.


Don’t contact the customer: When customers don’t hear from you, they don’t think of you.

Change salespeople frequently: It takes time for a salesperson to gain a customer’s confidence.  Frequent sales personnel changes make it difficult to establish a good relationship with a customer.

Resist change: Customer needs change, and if you stick with the same old policies, you won’t be able to satisfy their changing needs.

Ignore financial responsibilities: Some sure ways to lose a customer are slow or arbitrary credit adjustments, budget overruns and incorrect invoicing.


No one likes to think that their marriage might not work out, but half of today’s marriages end up in divorce.  So even if you think your marriage was made in heaven, it’s wise to protect yourself from the unexpected by taking some key defensive steps as early as possible.  Look for ways to protect yourself that don’t require your partner’s participation or knowledge and keep in mind that assets in your name are subject to disclosure in the event of a marital breakup.

Maintaining privacy

Here are two examples of simple but effective steps you can take to safeguard information about your personal financial affairs.

  • Get your own safe deposit box. If you own a business, you can make the box even more private by opening it in the name of the corporation.  Give access to another person who you trust and leave instructions for your spouse to contact that person in the event of your death.
  • Have certain mail delivered to your business address or to a post office box rather than to your home. Credit card bills, statements from your stockbroker, and similar sensitive mail usually contain information you might prefer to be kept confidential.

Taxes and trusts

There’s nothing that reveals more about your financial situation than your income tax form.  If you file a joint return, look for some investments that yield tax-free income which doesn’t have to be reported.  Or you might consider filing separate tax returns even if your taxes are slightly higher.

One of the best ways to conceal assets is through a Living Trust, which guarantees secrecy while you are living and avoids probate when you die.  You can act as its trustee and can designate an alternative trustee to administer and distribute its assets according to your wishes after you die.  Another advantage to a living trust is that although you must report income earned by the trust, you do not have to report the source of that income.

You can also protect your assets by putting them in your children’s names and designating yourself as the custodian of the children’s accounts.

Pre-nuptial agreements

Pre-nuptial agreements have become quite common and are an accepted way to protect the interests of both husband and wife.  They detail exactly how all finances, including child support and alimony, will be handled in the event of a divorce.  Pre-nuptial agreements also segregate assets owned before marriage.

Pre-nuptial agreements are yet another way to spell out the distribution of assets if there’s a divorce, but certain states do not enforce them as stringently as others.



  • Charge interest on late payments
  • Require partial advance payment on large order
  • Speed up order processing and billing procedures


  • Renegotiate unit costs and order quantities
  • Eliminate slow-moving inventory


Invest temporary excess cash in a money market account