(snip)"California Demands Income Tax Payments In Advance

Reader "Paul" just pinged me this news affecting business owners and self-employed contractors.

Hi Mish

I just picked up tax documents from my CPA. California require me to pay 30% of my estimated tax for the year on 04/15/10 and another 50% by 06-15-10. The balance of 20% is due on 01-15-11.

They want 80% of my annual estimate after 6 months, taxing me on money I have yet to earn for the year.


Only in La-La Land could one think these actions should impress the bond market. Then again, the stock market soared mid-day after Bernanke repeated for the 40th time that he was not hiking soon. So hey, who knows?"(snip)

from


If this isn't rescinded, it will probably mean the following to a California dancer.

Assuming a California dancer is earning $1000 a week net = $52,000 per year. Based on that level of income, she will owe somewhere around $2,700 in California state income tax dollars for the year. Normally this would require that $675 would need to be sent to the California Franchise Tax Board in the form of an estimated tax payment on April 15th, June 15th, Sept 15th, and Jan 15th of the next year.

However, with this rule change, instead of sending in $675 as the April 15th estimated tax payment, California now requires that the payment be raised to 30% of annual total tax or $900. And instead of sending in $675 as the June 15th estimated tax payment, California now requires that the payment be raised to 50% of annual total tax or $ 1,350. In exchange, the rule change allows the September and January estimated tax payments to be reduced to $27 each.

Obviously this rule change is going to create a huge 'cash crunch' for California dancers as well as all other California unincorporated businesses. It will, however, provide a convenient 'excuse' for the Cal FTB to begin audits and impose underpayment penalties and interest charges on those who fail to pony up the vastly increased amounts of estimated tax payments !!!