DQOTD: Managing Fed & State Estimated Taxes?

[Midpack]

It has to have been discussed here, but I didn't find anything using Search

This will be our first year relying entirely on making estimated tax payments, DW had wage withholding until now and all I had to do was add estimated tax payments for investment income. Our income will be significantly lower than 2018, so paying 90 or 100% of last year would be a big overpay.

I didn't see an easy way to get TurboTax to do it for me in 2019 short of creating a whole new return? I would have guessed it might be built in.

So all I know to do is create a spreadsheet like a 1040 or 1040-ES form and submit quarterly payments.

It seems there would be an easier way, what am I missing?

 

[RobbieB]

Just make a dummy return with no wages and add whatever extra income (dividends or cap gains) you estimate.

 

[audreyh1]

I do my own spreadsheet.

This is not something that TurboTax handles because they don’t apply the 4, 2.5, 1.5 multipliers needed to do the Annualized Income method for estimated taxes.

If you think you can reasonably estimate your taxable investment income for 2019, you could always compute taxes on that using TT (new 2018 return) and divide the result by 4 for your quarterly tax payments.

They do have a what if mode shortcut for this. It’s kind of hidden. It should be in the list of forms.

 

[Cobra9777]

We also have no withholding and rely entirely on quarterly estimated payments. I use my own spreadsheet to calculate the amounts. I use TurboTax to validate calculations initially. But I find it more efficient to do what-if's with Excel.

I have about 10 years of tax returns replicated in Excel (highly simplified version). The 2018 tab is still an estimate at the moment. But when I finalize the return in TurboTax, I'll update 2018 in Excel so I know exactly what's happening under the hood. When everything matches and makes sense, I copy 2018 to a new 2019 tab and start inputting known or anticipated changes. I also update the rates, brackets, standard deduction, HSA contribution limit, etc.

When I file the return on April 15, I'll also make the first quarterly payment for 2019 based on this calculation. Same for June 15 and Sept 15. When the new TurboTax comes out late in the year, I'll update it with my YTD 2019 data from Excel to firm things up and check the calculations for any changes in the law before the final Jan 15 payment. This also helps with the annualized income calculations and year-end decision-making such as Roth conversions and tax loss harvesting.

As I've said before, I like to pay the IRS the least amount possible, at the last possible moment, while carefully avoiding penalties for under-withholding. It only takes about 20-30 minutes each quarter, although quite a bit longer in December when I'm trying to firm things up before making a Roth conversion.

 

[scrabbler1]

My spreadsheet is a skeleton version of an income tax form which includes only the relevant items I need. I start off with estimated income amounts, mainly from the monthly and quarterly dividends. The spreadsheet includes the Qualified Dividends and LTCG worksheet, of course. I can get the tax brackets from the estimated tax form, downloaded from the IRS website early in the year.


As the year goes on, the actual data replaces the estimated data. I also adjust the remining estimates if necessary. The biggest guesswork are the year-end cap gain distributions which car vary widely until the brokerages release their year-end estimates at the end of October.


I also have a little part of the spreadsheet do the calculation for the ACA subsidy. There is some guesswork in that one, too. Not only does income (MAGI) matter a lot, but there are other figures I won't really know until I get the 1095-A form in the following January, after the 4th quarter's estimated tax payment is due on the 15th. But those special figures don't vary a whole lot from year to year.


If I remain eligible for the ACA subsidy, it will offset all or most of my taxes due, which is why I don't make any estimated tax payments until the 4th quarter.


On the state side, it is far simpler. It doesn't matter how much of my ordinary dividends are qualified because everything is taxed the same. The ACA stuff doesn't apply, either. Far less chance of itemizing, too, because state income taxes aren't deductible. And until 2018, the state's standard deduction was greater than the Fed's. But a spike in a cap gains distribution at the end of the year will impact the state's tax bill.

 

[kaneohe]

Why not use one of the tax calculators: https://www.mortgagecalculator.org/calcs/1040-calculator.php

Very good as basic stuff....if you have credits, etc. may or may not do them.

 

[ocean view]

DQOTD: Managing Fed & State Estimated Taxes?

Use TT. You don’t have to start from a blank return, take your 2018 TT file, do a “save as” and call it 2019 draft. Then take out the W2 income and adjust any other items you expect to be materially different this year, take payments down to zero. Whatever the tax liability is, divide by 4.

I think this is easier and safer than creating a new spreadsheet calculation if you are unfamiliar with all of the inter-dependencies.

Edit to add: Just make sure that by the end of the year you have paid 90% of the 2019 liability to meet the safe harbor for penalties.

 

[Hyper]

We just did our taxes. I asked this question. DW still working and taxes withheld. Around 20k ish investment returns we are ok not to pay quarterly. The closer we get to 30k ish investment returns we will have to start looking at making quarterly payments. This being because with DW income it's putting us too high $. When DW finally quits working, 30k ish, we should be fine without paying quarterly payments. I can't explain it more than that because I don't understand it. I trust our accountant (at the moment anyway) and basically do as he instructs.

 

[pb4uski]

It has to have been discussed here, but I didn't find anything using Search

This will be our first year relying entirely on making estimated tax payments, DW had wage withholding until now and all I had to do was add estimated tax payments for investment income. Our income will be significantly lower than 2018, so paying 90 or 100% of last year would be a big overpay.

I didn't see an easy way to get TurboTax to do it for me in 2019 short of creating a whole new return? I would have guessed it might be built in.

So all I know to do is create a spreadsheet like a 1040 or 1040-ES form and submit quarterly payments.

It seems there would be an easier way, what am I missing?

Easy peasy. Pull up the What-If worksheet in TT (from Forms View/Open Form) and copy your current year numbers in column 1 to column 2... adjust the numbers in the second column as appropriate and check the 2019 rates checkbox. In December 2019, make a tIRA withdrawal for the amount of the taxes on line 44 (round up) and have 99% withheld.

Alternatively, just send them 1/4 of the tax amount on 4/15, 6/15, 9/15 and 1/15/2020.

 

[Midpack]

Use TT. You don’t have to start from a blank return, take your 2018 TT file, do a “save as” and call it 2019 draft. Then take out the W2 income and adjust any other items you expect to be materially different this year, take payments down to zero. Whatever the tax liability is, divide by 4.

I think this is easier and safer than creating a new spreadsheet calculation if you are unfamiliar with all of the inter-dependencies.

Edit to add: Just make sure that by the end of the year you have paid 90% of the 2019 liability to meet the safe harbor for penalties.

This turns out to be the best solution for me because it provides estimates for Federal and State. Thanks! What-if did the same thing but it didn't estimate state that I could see.

So unfortunately it looks like we'll have big refund after 2019 with only one months DW wages/PTO and dividends/gains falling mostly if not entirely in the 0% brackets. Unfortunately DW's employer over withheld on her Jan checks.

But the state will extract it's usual pound of flesh...