Tax Shelters 2008
June 8th, 2000
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Tax Shelters 2008
Question: Tax Shelter? Suppose I received a large lump sum payment without taxes witheld?
Okay, suppose I received a relatively large lump sum check that I now must have to pay ES taxes on. And suppose I have an idea for a new business (start up costs) that I think actually may make some money, i.e. not just a write off. Could I start the biz in the 4th quarter of 2008 and then take the deductions, figure my 2008 tax, and get some of that money BACK that I just paid in the Sept 15 ES payment? A resource where I could get more info (link) would also be appreciated. Yeah, I know, I know…I should see a CPA…well I’ve got CPA friends but just wanted to ask this general question and see if I could get some more links and info BEFORE I went the CPA route. Okay? Thanks.
Answer: Depends on the source of the “large lump sum check”. Make sure it is taxable first, some items like Insurance payments are not. Others, like retirement distributions, may be eligible for rollover.
Assuming that this is taxable income, please check the estimated payment “safe harbor” rules. Penalties are only assessed if you do not make the “minimum payment”. You only need to pay in 100% to 110% of last year’s tax bill (depends on your income level). Keep the balance and send it in with your return (but be sure to file on-time!) That eliminates the need to estimate of the taxable losses on your new venture, just in case it doesn’t work out as expected.
IRS instructions for underpayment penalty and a related article are noted below. I advise my clients to make the full minimum payment, and keep the rest available for the April 15th filing.
Based on the question, I gather you already sent in the check. In general, you could be able to deduct a business loss and reduce your tax liability. As noted before, there are limits on start-up costs and also on asset depreciation. Get some help, I once had a client lose their first year (three months) deductions because the attorney filled out the corporation paperwork incorrectly.
Pam – (Licensed CPA)
Time To Tax Churches.
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