Taxmap/pubs/p505-012.htm#TXMP47a61911
How To Figure  
Estimated Tax

Taxmap/pubs/p505-012.htm#TXMP7037971e Step 1.

Figure your expected income tax (line 6 of the 2005 Estimated Tax Worksheet). Use the 2005 Tax Rate Schedules at the end of this chapter or in the instructions to Form 1040-ES to figure your expected income tax. You must use a special method to figure tax on the income of a child under age 14 who has more than $1,600 of investment income. See Tax on Investment Income of Child Under 14 in Publication 929, Tax Rules for Children and Dependents.

Taxmap/pubs/p505-012.htm#TXMP497ca604 Tax on net capital gain.

The regular income tax rates for individuals do not apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate.

The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

Taxmap/pubs/p505-012.htm#TXMP5f44be0c Qualified dividends.

The maximum tax rate for qualified dividends is 15% (generally, 5% for people whose other income is taxed at the 10% or 15% rate).

If you expect to have a net capital gain or qualified dividends, use Worksheet 2.5 to figure your tax.

Worksheet 2.5

1.	Enter the amount from line 5 of your 2005 Estimated Tax Worksheet
2.	Enter your expected qualified dividends for 2005*
3.	Enter the net capital gain expected for 2005*
4.	Add lines 2 and 3
5.	Enter your 28% rate gain or loss expected for 2005.
6.	Enter the unrecaptured section 1250 gain expected for 2005
7.	Add lines 5 and 6
8.	Enter the smaller of line 3 or line 7
9.	Subtract line 8 from line 4
10.	Subtract line 9 from line 1. If zero or less, enter zero (0)
11.	Enter the smaller of line 1 or $59,400 ($29,700 if single or married filing separately or $39,800 if head of household).
12.	Enter the smaller of line 10 or line 11
13.	Subtract line 4 from line 1. If zero or less, enter zero (0).
14.	Enter the larger of line 12 or line 13. Note. If line 11 and line 12 are the same, skip lines 15 and 16 and go on to line 17.
15.	Subtract line 12 from line 11.
16.	Multiply line 15 by 5% (.05). Note. If lines 1 and 11 are the same, skip lines 17-23 and go to line 24
17.	Enter the smaller of line 1 or line 9.
18.	Subtract line 15 from line 17. If zero or less, enter zero (0)
19.	Multiply line 18 by 15% (.15). Note. If line 6 is zero or blank, skip lines 20-24 and go to line 25
20.	Enter the smaller of line 3 or line 6.
21.	Add lines 4 and 14
22.	Subtract line 1 from line 21. If zero or less, enter zero (0)
23.	Subtract line 22 from line 20. If zero or less, enter zero (0)
24.	Multiply line 23 by 25% (.25). Note. If line 5 is zero or blank, skip lines 25-27 and go to line 28
25.	Add lines 14, 15, 18, and 23
26.	Subtract line 25 from line 1.
27.	Multiply line 26 by 28% (.28).
28.	Tax on line 14 from the 2005 Tax Rate Schedule
29.	Add lines 16, 19, 24, 27, and 28
30.	Tax on line 1 from the 2005 Tax Rate Schedule
31.	Tax. Enter the smaller of line 29 or line 30 here and on line 6 of the 2005 Estimated Tax Worksheet
*If you expect to deduct investment interest expense, do not include on this line any qualified dividends or net capital gain that you will elect to treat as investment income.

A collectibles gain or loss is any gain or loss from the sale or exchange of a work of art, rug, antique, metal, gem, stamp, coin, or alcoholic beverage or other collectible that is a capital asset and that was held more than one year.

Taxmap/pubs/p505-012.htm#TXMP5b1ac4dd Step 2.

Add your expected taxes (line 8 of the 2005 Estimated Tax Worksheet). Include on line 8 the sum of:

1. Your tax on line 6 of the worksheet,
2. Your expected alternative minimum tax from Form 6251 on line 7 of the worksheet,
3. Your expected additional taxes from Form 8814, Parents' Election To Report Child's Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions (line 43 box a and box b of the 2004 Form 1040), and
4. Any recapture of education credits.

Taxmap/pubs/p505-012.htm#TXMP4201f59c Step 3.

Subtract your expected credits (line 9 of the 2005 Estimated Tax Worksheet). If you are using your 2004 return as a guide and filed Form 1040, your total credits for 2004 were shown on line 55. If you filed Form 1040A, your total credits for 2004 were on line 35.

If your credits on line 9 of the worksheet are more than your taxes on line 8, enter "-0-" on line 10 and go on to Step 4.

Taxmap/pubs/p505-012.htm#TXMP0d40635b Step 4.

Add your expected self-employment tax (line 11 of the 2005 Estimated Tax Worksheet). You should have already figured your self-employment tax (see Expected Adjusted Gross Income earlier in this chapter).

Taxmap/pubs/p505-012.htm#TXMP145b521a Step 5.

Add your expected other taxes (line 12 of the 2005 Estimated Tax Worksheet).

Other taxes include:

1. Taxes on early distributions from:
   1. An IRA or other qualified plan,
   2. An annuity, or
   3. A modified endowment contract entered into after June 20, 1988,
2. Advance earned income credit payments,
3. Household employment taxes (before subtracting advance EIC payments made to your employee(s)) if:
   1. You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or
   2. You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax, and
4. Amounts written in on Form 1040, line 62.

Do not include tax on recapture of a federal mortgage subsidy, tax on golden parachute payments, excise tax on insider stock compensation from an expatriated corporation, social security and Medicare tax on unreported tip income, or uncollected employee social security and Medicare or RRTA tax on tips or group-term life insurance.

If you filed a 2004 Form 1040A, your only "other taxes" were any advance earned income credit payments on line 37.

Taxmap/pubs/p505-012.htm#TXMP3f7601d9 Step 6.

Subtract your expected earned income credit, additional child tax credit, Form 4136 fuel tax credit, and Form 8885 health coverage tax credit (line 13b of the 2005 Estimated Tax Worksheet). These are shown on the 2004 Form 1040, lines 65a, 67, and 69.

To figure your expected fuel tax credit, do not include fuel tax for the first three quarters of the year that you expect to have refunded to you.

The earned income credit is shown on the 2004 Form 1040A, line 41a. The additional child tax credit is shown on the 2004 Form 1040A, line 42.

The result of steps 1 through 6 is your total estimated tax for 2005 (line 13c of the 2005 Estimated Tax Worksheet).

Taxmap/pubs/p505-012.htm#TXMP0da04293 Required Annual Payment

Required Annual Payment

You figure the total amount you must pay for 2005 through withholding and estimated tax payments on lines 14a through 14c of the 2005 Estimated Tax Worksheet.

Taxmap/pubs/p505-012.htm#TXMP5448890f General rule.

The total amount you must pay is the smaller of:

1. 90% of your total expected tax for 2005, or
2. 100% of the total tax shown on your 2004 return. Your 2004 tax return must cover all 12 months.

Taxmap/pubs/p505-012.htm#TXMP7e5d33c0 Exceptions.

There are exceptions to the general rule for certain higher income taxpayers and for farmers and fishermen.

Taxmap/pubs/p505-012.htm#TXMP11c0c4a4 Higher income taxpayers.

If your adjusted gross income (AGI) for 2004 was more than $150,000 ($75,000 if your filing status for 2005 is married filing a separate return), substitute 110% for 100% in (2) above. This rule does not apply to farmers and fishermen.

For 2004, AGI is the amount shown on Form 1040, line 36; Form 1040A, line 22; and Form 1040EZ, line 4.

Taxmap/pubs/p505-012.htm#TXMP68f88c17 Farmers and fishermen.

If at least two-thirds of your gross income for 2004 or 2005 is from farming or fishing, your required annual payment is the smaller of:

1. 662/3% (.6667) of your total tax for 2005, or
2. 100% of the total tax shown on your 2004 return. (Your 2004 tax return must cover all 12 months.)

For definitions of "gross income from farming" and "gross income from fishing," see Farmers and Fishermen later under When To Pay Estimated Tax.

Taxmap/pubs/p505-012.htm#TXMP55644cf9 Total tax for 2004.

Your 2004 total tax on Form 1040 is the amount on line 62 reduced by the total of the amounts on lines 58, 65a, and 67, any credit from Form 4136 or Form 8885 included on line 69, any recapture of a federal mortgage subsidy, any tax on golden parachute payments, excise tax on insider stock compensation from an expatriated corporation, and any uncollected social security, Medicare, or railroad retirement tax included on line 62, and any tax on excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts and on excess accumulations in qualified retirement plans from Form 5329 included on line 59.

On Form 1040A, it is the amount on line 38 reduced by the amounts on lines 41a and 42. On Form 1040EZ, it is the amount on line 10 reduced by the amount on line 8a.

Taxmap/pubs/p505-012.htm#TXMP2f496824 Example 2.5.

Jeremy Martin's total tax on his 2004 return was $45,000, and his expected tax for 2005 is $70,000. His 2004 AGI was $180,000. Because Jeremy had more than $150,000 of AGI in 2004, he figures his required annual payment as follows. He determines that 90% of his expected tax for 2005 is $63,000 (.90 × $70,000). Next, he determines that 110% of the tax shown on his 2004 return is $49,500. Finally, he determines that his required annual payment is $49,500, the smaller of the two.

Taxmap/pubs/p505-012.htm#TXMP032597bc Total Estimated   Tax Payments

Estimated Tax

Figure the total estimated tax you must pay for 2005 on lines 15 and 16 of the 2005 Estimated Tax Worksheet. Subtract your expected withholding from your required annual payment. You usually must pay this difference in four equal installments. (See When To Pay Estimated Tax and How To Figure Each Payment, later.)

If your total expected tax on line 13c, minus your expected withholding on line 15, is less than $1,000, you do not have to pay estimated tax.

Taxmap/pubs/p505-012.htm#TXMP242c55a8 Withholding.

Your expected withholding for 2005 includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc.). It also includes excess social security and railroad retirement tax you expect to be withheld from your wages.

For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2005 only if your wages from two or more employers are more than $90,000.

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