OVDI - Amending Taxes

r2itemp · Post by **r2itemp** » Thu Jul 28, 2011 7:06 am

1. How are you amending previous years' taxes (from 2003 onwards)?
Looks like the online programs will not be able to do it even though we had previously filed through them for those years.
Is this something that CPAs will be able to do easily?

2. If I had $100 interest earned in year 2004 and my tax bracket falls in 25% category, then I should pay 25% of $100 = $25 with 6 years of 6% (as of 2005 April 15) of interest on this plus 20% accuracy fee on the final tax+interest amount = $34 + 20% of $34 (25+9) ==> $40.8.
Is this correct?

greyfri · Post by **greyfri** » Thu Jul 28, 2011 6:18 pm

r2itemp;401440
2. If I had $100 interest earned in year 2004 and my tax bracket falls in 25% category, then I should pay 25% of $100 = $25 with 6 years of 6% (as of 2005 April 15) of interest on this plus 20% accuracy fee on the final tax+interest amount = $34 + 20% of $34 (25+9) ==> $40.8.
Is this correct?

Your interest computation is not correct. The rate is not a flat 6%, it changes quarterly based on federal rates, and its compounded daily, not simple interest over 6 years. Also, to be technical, its slightly different if you filed an extended return any year. But if you don't want to do all those calculations, then you can use your method as a rough approximation. The IRS will recalculate the interest in any case, and will adjust accordingly.

See:

http://www.irs.gov/pub/irs-pdf/n746.pdf

binarysemaphore · Post by **binarysemaphore** » Thu Jul 28, 2011 11:14 pm

I am using interest rates mentioned in n746.pdf and using calculator located at

http://www.mw-plus.com/webdic.php

This calculator has ability to daily compound. Earlier I feared that daily compounding would be killing, but it is actually not that bad as I had thought. I hope this calculator is correct. Otherwise IRS will send me a bill anyways :-)

r2itemp · Post by **r2itemp** » Fri Jul 29, 2011 5:51 am

So do I need to calculate it n number of times for year 2004 tax? I mean let's say my tax for year 2004 was $100 then from April 15 2005 to today the rates have been changed 10 times, so do I need to calculate for each period (10 times) and total the amount? This is very complicated but I think it is the best way to do it. Please let me know how are you doing..

greyfri · Post by **greyfri** » Fri Jul 29, 2011 4:17 pm

r2itemp;401716So do I need to calculate it n number of times for year 2004 tax? I mean let's say my tax for year 2004 was $100 then from April 15 2005 to today the rates have been changed 10 times, so do I need to calculate for each period (10 times) and total the amount? This is very complicated but I think it is the best way to do it. Please let me know how are you doing..

That's wrong. For interest ,you need to COMPOUND daily over every period. So you take the amount at the beginning of the quarter, compound over a quarter for the then prevailing rate, then take that amount, compound over the next quarter at the rate for that quarter and so on. If the rate doesn't change, you can compound over multiple quarters at one go.

If you don't want to do all that, just use some simple formula, over-estimate interest a little and send it to the IRS with a note indicating that its an approximation. They have large computer programs that will do the calculation and adjust accordingly.

[ The IRS wants interest compounded daily because even one day of interest can be a lot of money for large corporate payments in the millions and billions]

r2itemp · Post by **r2itemp** » Sat Jul 30, 2011 6:24 pm

Thanks grryfri for correcting.
This is getting complicated as I get more into it..
:(

greyfri;401818That's wrong. For interest ,you need to COMPOUND daily over every period. So you take the amount at the beginning of the quarter, compound over a quarter for the then prevailing rate, then take that amount, compound over the next quarter at the rate for that quarter and so on. If the rate doesn't change, you can compound over multiple quarters at one go.

If you don't want to do all that, just use some simple formula, over-estimate interest a little and send it to the IRS with a note indicating that its an approximation. They have large computer programs that will do the calculation and adjust accordingly.

[ The IRS wants interest compounded daily because even one day of interest can be a lot of money for large corporate payments in the millions and billions]

zen · Post by **zen** » Mon Aug 08, 2011 6:56 am

I found the attached spreadsheet in one of the other forums. I have not tried it or verified it but maybe it could help. I was just planning on using it anyways.

realgoogler · Post by **realgoogler** » Mon Aug 08, 2011 8:55 am

Does n't look correct. It averages the interest rates by month.
I guess it should be doing daily compounding using EFFECT function, for example EFFECT( 0.05, 30) will give the daily rate for for 5% over a month with 30 days.

binarysemaphore · Post by **binarysemaphore** » Mon Aug 08, 2011 11:08 am

Actually, I had manually done this daily compounding exercise using http://www.mw-plus.com/webdic.php

Zen's excel file is pretty close to what I got (max $2-$3 difference)

zen · Post by **zen** » Tue Aug 09, 2011 11:27 am

binarysemaphore;403425Actually, I had manually done this daily compounding exercise using http://www.mw-plus.com/webdic.php

Zen's excel file is pretty close to what I got (max $2-$3 difference)

Interesting. What figure were you looking at when you say that it was very close. My final figure came to around $775 after I put in my numbers, so I don't mind adding another $50 & let the IRS do the calculation for me. I don't think I have time and desire to manually calculate the compound interest. If the final figure is pretty close, I will use the spreadsheet.