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Old 05-01-2015, 08:47 AM   #21
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Have you considered the annualized income installment method? Our income is loaded in the fourth quarter since it is mostly dividends, capital gain distributions, capital gains for our fourth quarter rebalancing, and Roth conversions so as of each of the first 3 quarters our taxes would be nil based on our YTD income. So I only make an estimated payment in the last quarter of the year, and even if I failed to do so there would be no penalty or interest for the first 3 quarters.

You have to do a little more analytical work (Form 2210AI) to prove that you did not have a tax liability in those quarters.

The same principle can be used on penalties. In my first year retired, my state sent me a nastygram that I owed penalties and interest because i was underpaid. After I wrote to them and explained that our income was loaded into the last quarter of the year and we owed no tax for the first three quarters and that I paid what I owed for the last quarter timely, they abated the penalties and interest.
+1 Good for uneven income scenarios. I also ran into an issue with the state one year, as they assume all W2 income is received evenly throughout the year. I work part-time (consulting work) for a start-up design engineering firm and quarterly income can be uneven. Had to have the company verify quarterly incomes, and penalty was (eventually) removed - state where we live took until October of that year to take care of the issue, and pay the refund originally owed.
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Old 05-01-2015, 09:28 AM   #22
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I sometimes use the annualized method, but the calcs are pretty complex, and even though I have the spreadsheets, they have to be updated every two or three years as the rules keep changing. Maintenance is becoming a major chore.
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Old 05-01-2015, 09:58 AM   #23
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We're paying estimated for the first time this year. I'm assuming that we'll make the max up through the 15% tax bracket. Will do a Roth conversion if investment income doesn't get us to that point. So, that makes calculation of estimated payments easy. If investment income bumps us into a higher bracket, I'm also keeping track of our income by month (have taken profits on some stocks) so that if we get hit by a ton of capital gain distributions in November/December we'll still be OK.
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Old 05-01-2015, 10:23 AM   #24
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I'm self employed, nothing is taken from my checks.
For self employed you have different set of issues, check IRS self employment page, Self-Employed Individuals Tax Center
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Old 05-01-2015, 11:29 AM   #25
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Originally Posted by audreyh1 View Post
I sometimes use the annualized method, but the calcs are pretty complex, and even though I have the spreadsheets, they have to be updated every two or three years as the rules keep changing. Maintenance is becoming a major chore.
Yes, it is a bit of a chore, especially since the periods are not true calendar quarters as someone previously mentioned. Luckily, I can do some Quicken reports and get most of the info for each period. Even though I cuss to myself what a PITA it is to do, the reality is that it takes me less than an hour.

Given how low the time value of money is right now though, it might be easier just to do an estimate for the year and make quarterly payments.
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Old 05-01-2015, 11:42 AM   #26
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Given how low the time value of money is right now though, it might be easier just to do an estimate for the year and make quarterly payments.
That's what I've done. I'm making even quarterly payments based on what I owed last year. I'm converting my Roth to the same threshold as last year, so I should be close. If I have a little more dividends or CGs I'll owe a bit more but no penalty due to safe harbor. If I have less, I'll get a small refund. Since I did most of my conversion early in the year, it works out well to do it this way rather than estimate what's really owed each quarter.

To whoever missed the 1Q payment, I would pay it ASAP and make the regular payments on the other quarters. You'll pay less interest that way. If you do it in thirds the rest of the way, you'll still be behind until that final payment so you'll own more in interest as the interest will accrue on the amount you are short.

Using that EFTPS system is very smooth. You can set it up for all year, you can view your payment history and upcoming payments, you can set reminders to tell you that a payment is coming to make sure you have money in your account it's being drawn from, and you can easily change payments if you situation calls for it. No worries of forgetting, check being lost in the mail, payment somehow credited to the wrong account, wondering if they really got it, etc.
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Old 05-01-2015, 03:22 PM   #27
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We just have taxes withheld from our IRA withdrawal. So don't deal with q payments.
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Old 05-01-2015, 03:30 PM   #28
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Originally Posted by pb4uski View Post
Yes, it is a bit of a chore, especially since the periods are not true calendar quarters as someone previously mentioned. Luckily, I can do some Quicken reports and get most of the info for each period. Even though I cuss to myself what a PITA it is to do, the reality is that it takes me less than an hour.

Given how low the time value of money is right now though, it might be easier just to do an estimate for the year and make quarterly payments.
The regular tax tables are easy enough. But the capital gains calculations have gotten pretty hairy over the past couple of years, and the AMT estimates aren't that easy either. I have to estimate all of these things to come up with a reasonable of all these taxes plus NIIT.

Fidelity actually gives excellent YTD tax information on their website, and the other stuff is just interest which I get from Quicken. So collecting the info is the easiest. Crunching it annualized is the tough part.

Right now I'm doing the safe harbor method because even though I don't own most of the tax until the end of the year, the total tax is still in the ballpark if not a little under what I end up owing. If I have a significant drop in taxable income one year, I'll switch to annualized.

Actually - I evaluate in January. And if I determine that I have already covered 90% of the prior year's taxes, I'll lower or skip my Jan 15 estimated payment. It's easier that way, because I have very close to all the numbers.
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Old 05-01-2015, 03:38 PM   #29
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Ditto on EFTPS. Ditto on paying an amount at least equal to the prior year.
Exactly what we do as well.
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Old 05-01-2015, 04:55 PM   #30
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We just have taxes withheld from our IRA withdrawal. So don't deal with q payments.
Upping Federal tax-deferred withholding to also cover taxable withdrawals would work for Federal, but we don't currently access tax deferred accounts due to ACA income manipulation (retired early - will look at Roth conversions after reaching 65 in three years. Vanguard doesn't offer withholding on taxable accounts and also doesn't withhold for state on either taxable or tax deferred AFAIK.
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Old 05-02-2015, 01:20 PM   #31
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Another EFTPS fan here. Been using that system for >5 years and could not be easier. Most of my incomes have a provision for tax deduction but not interest/dividend income.
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