Third quarter estimated tax due August 2018 Tax News

The third quarter estimated tax payment is due September 17. While the amount due for the third quarter is zero, this is a good opportunity for your clients to get current, if they are not already. You may want to remind your clients that the percent per quarter for California differs from federal. To avoid an estimate penalty they must pay at least:

• 30 percent first quarter (April 17, 2018)
• 40 percent second quarter (June 15, 2018)
• 0 percent third quarter (September 17, 2018)
• 30 percent fourth quarter (January 15, 2019)

Your clients can use the California Estimated Tax Worksheet in the Instructions for Form 540-ES, Estimated Tax for Individuals to figure their estimated tax payments and use Form 540-ES to pay their estimated tax installments. Generally, taxpayers must make estimated tax payments if they expect to owe at least $500 ($250 if married/RDP filing separately) in tax for 2018 (after subtracting withholding and credits) and they expect their withholding and credits to be less than the smaller of:

• 90 percent of the tax shown on their 2018 tax return.
• 100 percent of the tax shown on their 2017 tax return including Alternative Minimum Tax (AMT).

Limit on the use of prior year’s tax

Individuals who are required to make estimated tax payments, and whose 2017 California adjusted gross income is more than $150,000 (or $75,000 if married/RDP filing separately), must figure estimated tax based on the lesser of 90 percent of their tax for 2018 or 110 percent of their tax for 2017 including AMT. This rule does not apply to farmers or fishermen.

Taxpayers with 2018 California adjusted gross income equal to or greater than $1,000,000 (or $500,000 if married/RDP filing separately), must figure estimated tax based on their tax for 2018.