| From Massachusetts ... |
 |
Dear TaxMama,
How does an individual cope with erratic mutual fund distributions being considerably higher than estimated when
estimated payments were calculated earlier in the year. I was penalized in 1999 for underpayment but the high distributions were not made until the end of the year. I even made a substantially higher 4th estimated payment but IRS apparently considers mutual fund distributions to be spread across the entire year. Year 2000 will be even worse.
John C
Hi John,
If you talk to your tax pros, maybe they can help you figure out how to fill out this special form to compute the penalty differently. (See: This form)
I'd have to do some research, but, I'll bet there is legal precedent to treat those dividends as coming at the end of the year ... if handled right.
However, if you pay 110% of last year's (1999) tax liability, you should have no problems at all. (See: TaxMaMa's Article - Estimated Payments ~ Hate Them? But Pay Them!)
On a similar track ... I heard some comments on the radio yesterday from someone who said that for 2000, the mutual fund companies will have substantial capital gains. Since the market was so volatile this year, you can just bet that your fund manager sold off lots of stocks before and after the market starting dropping. No doubt, they were sold at a profits ... at least during the earlier part of the year. As John said, those profits ARE going to be posted this month.
Call you mutual fund companies (or your brokers) NOW to find out approximately how much they will post to your account. You will be paying taxes on those gains (unless the funds are in IRAs or other retirement accounts, naturally). Make sure your withholding is high enough (you may still have time to convince your payroll department to take one big chunk of tax from your last paycheck this year).
Otherwise, read the article above NOW to figure out what to do.
Good luck! and Best wishes,
Eva Rosenberg