Hi lukegrundy,
1. Yes, the location of the withholding matters.
- The withholding must be submitted to the IRS. If you withhold and place the money in an interest bearing bank account, the IRS won't consider this to be withheld and you be subject to paying interest and penalties on late payment of taxes.
- Yes, if you withhold in an interest bearing account. The interest earned is subject to income taxes. You will receive a 1099INT for interest earned over $10
2. Yes, you can incorporate the tax-deductible/nontaxable items in your quarterly filing information to accurately calculate estimated quarterly taxes due. If you choose to leave these items out of estimated taxes, your estimated payment will be higher but you will see the benefit of lower tax liability when you file your tax return.
Whether you include these items in estimated payments or not, you would always provide the information at end of year filings to get an accurate tax liability when preparing the tax return for the year.
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