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Estimated Income Tax
Old 11-12-2014, 09:43 AM   #1
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Estimated Income Tax

This is going to be a bit of a goofy year in terms of federal income tax.

I retired 6/1/14 and had the proper amount of income tax withheld on all salary, bonuses, and paid out benefits.

But the dividends and expected capital gains distributions on my after-tax portfolio are going to be substantial this year, so much so that it looks like I will be in an under-payment penalty situation when I complete my federal tax return for 2014 compared to income/withholding for 2013.

The brunt of the impact will be later next month when Vanguard distributes capital gains on Wellesley and Wellington. Should I make an "estimated" tax payment? If so, when should I do that?
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Old 11-12-2014, 09:51 AM   #2
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Yes, make an estimated tax payment by Jan 15 2015 for income you got in the 4Q. You may have to fill out a form (2210?) to show why your payments were uneven, by showing when the income was realized.

Publication 505 (2014), Tax Withholding and Estimated Tax

IRS e-pay is easy to use. Your state may have an e-pay system as well. Never mind, I see you are in Austin, with no state income tax in TX, but I leave it as a reminder to others to not ignore state taxes.
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Old 11-12-2014, 10:32 AM   #3
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As long as you paid more taxes than you paid last year, or owe less than $1,000, there is no penalty. Since you retired, you probably paid quite a bit less.

I up my withholding so I do not have to pay estimated tax. I currently pay an additional $3,000 per month in federal taxes, and earlier in the year it was a bit less.
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Old 11-12-2014, 10:46 AM   #4
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Looks like I'm good thru 8/31, the end of the third reporting period; had a sufficient amount of withholding while working to cover all income including 1st/2nd quarter dividends from after-tax portfolio.

So according to the info RunningBum linked to, I'll be okay if I make an estimated payment by 1/15/15 for the fourth reporting period 9/1-12/31.

Look like my 4th period to date and estimated dividends/cap gains distributions next month will result in an additional $40K of income. Ran all of this thru TaxCaster and it works out to another $9K or so in federal income tax.

Dang.

Guess I'll look forward to making that $9K payment in January after all of the final numbers come in.
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Old 11-12-2014, 11:11 AM   #5
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Relax. This is really no big deal.

You can buy a copy of TurboTax around Thanksgiving and fill out your 2014 tax return as best you can with the expected amounts of year-end distributions. It will be a piece of cake. TT will tell you if you have had enough tax withheld and the amount that you might owe. It will even figure out if you would have to pay a penalty if you don't make that estimated tax payment by 1/15/2015.

I do this every year. It's easy and also helps with other year-end tax planning such as amounts to donate to charity to avoid extra taxes, amounts to convert to Roth IRAs, and so on. It's all part of being a citizen of the USA. It makes you feel good to stiff the IRS out of the taxes you aren't paying.

And I would only use TaxCaster before Thanksgiving. One needs a real 2014 tax software for the details and real money. So use TurboTax from Thanksgiving onwards.
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Old 11-12-2014, 11:14 AM   #6
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LOL! Thanks.
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