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Old 09-23-2014, 10:45 PM   #21
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And if you have not already, you may want to setup an account with eftps.gov to pay the estimated taxes electronically.
Makes it easy. Most years I just do the safe harbor amount and set it up for 4 quarters all at once.

I do a proforma return in December so I can true up the state taxes to get the deduction in the current year.

Never been able to get bunching to work to use Std. Deduction but it works great for charitable deductions. We bunched 15 years of charitable deductions into one year by donating appreciated stock to our DAF in a year when my income spiked right before ER. Took advantage of the maximum tax rate situation.
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Old 09-24-2014, 12:35 PM   #22
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... We use the installment method so only make estimated tax payments near year end or in early January and they generally are real close to our tax liability.

It works well for the feds since I do an Form 2210 that is part of my electronic filing. ....
Being new at this, I'd never heard of the installment method. Does your tax software guide you through the installment method and 2210, or does that need to be a side calculation?
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Old 09-24-2014, 12:45 PM   #23
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It's more properly the Annualized Income Installment Method. You essentially do an estimated return each period based on your income to date. It works real well in my case since we are under the tax limits until December. The 2210 does require a little work to analyze your income by period but since I have almost everything in Quicken it is relatively easy for me.


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Annualized Income Installment Method

If you do not receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.

The annualized income installment method annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. To see whether you can pay less for any period, complete the 2014 Annualized Estimated Tax Worksheet (Worksheet 2-9).



You first must complete the 2014 Estimated Tax Worksheet (Worksheet 2-1) through line 16b.
Use the result you figure on line 32 of Worksheet 2-9 to make your estimated tax payments and complete your payment vouchers.

Note.

If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2014 tax return. See Annualized Income Installment Method (Schedule AI) in chapter 4 for more information.
see Publication 505 (2014), Tax Withholding and Estimated Tax
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Old 09-24-2014, 01:02 PM   #24
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Being new at this, I'd never heard of the installment method. Does your tax software guide you through the installment method and 2210, or does that need to be a side calculation?
Turbo Tax will divide your current year's tax by 4 and suggest you pay that amount at each of the 4 due dates for estimated tax installments. They also created voucher forms for my state installments. I do both online and I can divide by 4 so it's not big deal.

TT doesn't really help with estimating actually taxes as you go if you want to do uneven payments. For one thing, the 2014 program wasn't ready in time for earlier payments so you'd have to use 2013 and hope nothing changes too much for you. And it won't do things like applying 1/4 of your exemptions. I just use a spreadsheet. I guess you could probably multiple your income and deductions by 4 to see what the yearly amount would be, then divide the tax due by 4 to get your estimate for that quarter.

TT does guide you through form 2210 somewhat but I don't recall if it was smart enough to look at sale date of stocks and dates dividends were received, or when property taxes were paid, to group them by quarter. It seemed to me that I had to add everything up myself. I could be wrong because it seems like you've already put in dates for most or all that stuff so they should be able to do it.
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Old 09-24-2014, 02:23 PM   #25
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....TT does guide you through form 2210 somewhat but I don't recall if it was smart enough to look at sale date of stocks and dates dividends were received, or when property taxes were paid, to group them by quarter. It seemed to me that I had to add everything up myself. I could be wrong because it seems like you've already put in dates for most or all that stuff so they should be able to do it.
I use a spreadsheet analysis to allocate my income to periods and use that when I do my 2210. When I first did it it was a real PITA, but once I had the "template" set, it was relatively painless to update for the next year.
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Old 09-25-2014, 08:37 AM   #26
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We don't do quarterly payments. We take one IRA distribution/yr and have the taxes withheld from that distribution.

See bottom of this:

Taxes: Estimated Tax Strategies for Retirees
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Old 09-25-2014, 10:00 AM   #27
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We don't do quarterly payments. We take one IRA distribution/yr and have the taxes withheld from that distribution.

See bottom of this:

Taxes: Estimated Tax Strategies for Retirees
That link is a nice summary of the whole estimated tax payment process, as well as a good strategy for withholding if you are taking IRA distributions.
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Old 09-25-2014, 11:12 AM   #28
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We don't do quarterly payments. We take one IRA distribution/yr and have the taxes withheld from that distribution.

See bottom of this:

Taxes: Estimated Tax Strategies for Retirees
Good one!

I'm such a noob at this, I didn't even know about the $1000 threashold:
Quote:
If you expect to owe more than $1,000 in federal income taxes that are not prepaid through withholding, you have to make quarterly estimated tax payments.
I might just employ this scheme next year:
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If you want to avoid penalties for underestimated taxes and also avoid the chore of preparing quarterly estimated tax payments, have enough income taxes withheld from IRA distributions, annuities, and other payments to at least equal last year's taxes.
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Old 09-25-2014, 11:56 AM   #29
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"If you expect to owe more than $1,000 in federal income taxes that are not prepaid through withholding, you have to make quarterly estimated tax payments. "

Does this rule mean I have to make quarterly estimated IT payments of 1/4 of the entire amount I expect to owe, or just enough to get down to owing under $1,000 the following April? It seems to be the former, but I treat it as the latter (and have never been questioned by the IRA about it). For example, if I expect to owe $1,800, I have paid about $600 in the third quarter, $600 more in the 4th quarter, and $600 more in the following April. Most of my income occurs after June 1st, the start of the third "quarter" for estimated tax purposes. I have no way to have taxes withheld because none of my income is from W-2 or an IRA's RMD, both of which have withholding provisions.

In an somewhat related question, could the federal subsidy from the ACA be used as a backhanded withholding method? I have no advanced premium payment via the subsidy, so I anticipate a subsidy (tax credit) of about $900 coming my way. Could I use that $900 as partial payment of my federal income taxes which would drop my total taxes due to under $1,000. I haven't found anything on point about this (i.e. the "safe harbor" rule and estimated IT payments), but I'm going to do it anyway.
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Old 09-25-2014, 02:34 PM   #30
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One more question, since State income tax is part of the itemized deductions and it will affect the accuracy of the estimated Federal tax, are we supposed to try to do the State income tax estimate first and use that number to calculate the estimated Federal tax?

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Old 09-25-2014, 04:53 PM   #31
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One more question, since State income tax is part of the itemized deductions and it will affect the accuracy of the estimated Federal tax, are we supposed to try to do the State income tax estimate first and use that number to calculate the estimated Federal tax?

mP
Definitely, if you plan to itemize. And make sure to make that 4th quarter estimated state income tac payment before 12/31 so you can deduct it on that same year's federal return. Otherwise, you have to wait another year before you can deduct it. (I learned that the hard way back in 1998, the first year I made an estimated stat income tax payment.)
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Old 09-25-2014, 07:25 PM   #32
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One more question, since State income tax is part of the itemized deductions and it will affect the accuracy of the estimated Federal tax, are we supposed to try to do the State income tax estimate first and use that number to calculate the estimated Federal tax?

mP
Depends when you make the state income tax payment. If you make your 1st one on April 15, it's not a first quarter deduction. If you're doing your 4th on or before Dec 31, that is a 4th quarter deduction so you can calculate it in. Except for if you make an early 4th quarter payment, usually you're deducting the state income tax paid for the previous quarter.
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