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First year FIRE'd and taxes - is it really this simple?
Old 12-27-2014, 05:19 PM   #1
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First year FIRE'd and taxes - is it really this simple?

I FIRE'd at the end of May; at that time my federal withholding kept pace with my salary.

I worked P/T until the end of August; again my federal withholding kept pace with my salary.

The amount withheld seems to satisfy my tax obligation for total earned income during that period according to TaxCaster.

But from 9/1 until now when all of my Vanguard distributions have completed, the dividends and capital gains distributions I've received from my after-tax accounts have been substantial. TaxCaster estimates I'll owe an additional $11,500.

9/1 thru 12/31 correlates to the IRS's 4th reporting period. So is it really as simple as just sending in a 1040ES with a check for $11.5K by January 15th?
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Old 12-27-2014, 05:38 PM   #2
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At this point, yes. For next year, you may want to consider making quarterly estimated payments to avoid the year-end surprise, and perhaps an underpayment penalty.

-- Rita
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Old 12-27-2014, 06:11 PM   #3
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Vanguard can deduct taxes from your distributions. I have this done so that I am pretty close to $0 taxes owed at the end of the year.
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Old 12-27-2014, 06:47 PM   #4
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Originally Posted by Gotadimple View Post
At this point, yes. For next year, you may want to consider making quarterly estimated payments to avoid the year-end surprise, and perhaps an underpayment penalty.

-- Rita
Good point - although without the six-figure salary the tax hit won't be quite so large.
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Old 12-28-2014, 07:31 AM   #5
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I just adjust my Federal withholdings each year to cover anticipated DC and Federal taxes for me and DW. DW has some partnership income that requires SS self employment payments as well as income tax, and we too have VG distributions, but the Fed deduction covers it all. I find that simpler than worrying about quarterly payments. You can specify specific monthly dollar amounts for Federal and state taxes so it is easy to tweak in mid April if you conclude that you are running a bit low or high for the next year.
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Old 12-28-2014, 08:18 AM   #6
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Quote:
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....9/1 thru 12/31 correlates to the IRS's 4th reporting period. So is it really as simple as just sending in a 1040ES with a check for $11.5K by January 15th?
Yes. In fact, you don't even really have to do a 1040 ES. You could just send them a check with a payment voucher with your name and TIN. Or just a check with your TIN and 4Q14 est payment in the memo section of the check (not recommended though). Or register for their electronic estimated payment system and do it via electronic transfer.

But for 2015, do a pro forma return of your 2015 income and deductions using Taxcaster or TurboTax. If you are in the 15% tax bracket the qualified dividends will be tax-free so your taxes may be a lot lower than while you were working. If you will have SS or a pension in 2015, it may bump you up over the 15% tax bracket and those qualified dividends will be taxed at 15%.
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