DQOTD: Roth Conversions & (Est) Tax Payments?

[Midpack]

Federal Taxes: I wasn't planning on Roth conversions when the year started, but I'm going to convert a big chunk yet this year. So my 4th Qtr estimated tax payment will be much larger than previous quarters. I assume that may trigger a Form 2210, but I've done that before, not hard with TT. And I'm inclined to do the same next year, versus four roughly equal estimated tax payments. Am I missing something tax penalty or audit wise?

State Taxes: I'm also still considering paying taxes on half the total years income in our former state of residence and half in our present state because we'll save about $2K. But far more of the total years income, because of the TIRA distribution, actually hits in our present state - and I gather from all I've read we're supposed to divvy everything up based on exactly when it was realized, and not based on how many months living in each state.

Comments welcome, I've not be able to find anything completely definitive online so far, just a lot of (deliberately) vague language.

 

[pb4uski]

On the second part, yes... generally income is allocated based on when it is earned and based on your dates of residency in each state... so I would attribute Roth conversion to the sate of residence on the dates that the IRA conversions occur... that is the way it would be done in Vermont for a part-year resident and many other states as well... however, you should consult the part-year resident return instructions for your 2019 states of residence.

On the first part, that would work. Alternatively, if you are over 59 1/2 you could forgo a portion of the Roth conversion equal to the tax and do a tIRA withdrawal with taxes withheld and the IRS will consider it as having been paid throught out the year no matter when the withholding occurs.

https://www2.illinois.gov/rev/forms...year/individual/il-1040-schedule-nr-instr.pdf

https://files.nc.gov/ncdor/documents/files/2018_d-401_instruction_booklet.pdf see page 20

 

[Midpack]

On the second part, yes... generally income is allocated based on when it is earned and based on your dates of residency in each state... so I would attribute Roth conversion to the sate of residence on the dates that the IRA conversions occur... that is the way it would be done in Vermont for a part-year resident and many other states as well... however, you should consult the part-year resident return instructions for your 2019 states of residence. I know it's the right thing to do, just kidding myself about splitting by months vs actual residence dates to be truthful. Both states tax docs are somewhat vague, but both state something to effect "when the income is actually earned." The state we're leaving form requires two columns, income in their state and total income - they may be "unhappy" when they see their relatively small piece.

On the first part, that would work. Alternatively, if you are over 59 1/2 you could forgo a portion of the Roth conversion equal to the tax and do a tIRA withdrawal with taxes withheld and the IRS will consider it as having been paid throught out the year no matter when the withholding occurs. I'm planning to pay all taxes from taxable, unless I am missing your drift.

Thanks!

 

[pb4uski]

Its really no different than the allocation of income to quarters on Form 2210 AI, but is it easier since there are only two periods.... resident of state A and resident of state B. So for each line item, all you need to do is detemine income through the date you changed residence of state A and by default the remainder relates to the time you were resident of state B.

Your taxes may be more complex than mine but I know that I could take my total income and deductions and allocate them to two periods in less than an hour. Since you are a cash basis taxpayer, when earned is when received.

It doesn't matter if the state that you are leaving is disappointed with the amount relating to them... it is what it is and you can easily support the amounts based on records of the dates that they occurred.

 

[Midpack]

I keep track of all income by date in Excel to do my estimated taxes, so splitting is already done, easy peasy.

And I was joking about former state being unhappy, it is what it is as you note, and I eFile so odds are no human will ever see it. Thanks again.

 

[audreyh1]

Federal Taxes: I wasn't planning on Roth conversions when the year started, but I'm going to convert a big chunk yet this year. So my 4th Qtr estimated tax payment will be much larger than previous quarters. I assume that may trigger a Form 2210, but I've done that before, not hard with TT. And I'm inclined to do the same next year, versus four roughly equal estimated tax payments. Am I missing something tax penalty or audit wise?

Comments welcome, I've not be able to find anything completely definitive online so far, just a lot of (deliberately) vague language.

Don’t think so - no hidden tax penalty. Especially if you’ve paid 3 quarters at safe harbor rates already. In fact you can pay 4 quarters at the safe harbor rate based on last year’s taxes and don’t owe any additional until April 15 2020. You won’t even have to file form 2210 in that case.

Can’t answer for the state stuff.