Accounting for tax refund in budget

[kcowan]

I pay the extra in installments every year. Mostly caused by "unplanned" capital gains. Yes it requires cashflow planning. Even when I worked, I always owed at tax time due to bonuses.

 

[kgtest]

I change withholding until I get a close as I can to writing a small check to both federal and state, one that does not incur underpayment penalties.

+1. Change my witholding throughout the year to get within ~1000.
I don't really like any surprise expenses over $1k right now.


EDIT to add, I pay less in the beginning of the year and ramp up withholding towards the end. I bese it off of previous years taxes/withholding schedule and since much doesn't change I can get close. With the loss of the child exemptions it made calculating a little harder.

 

[scrabbler1]

When I was working, any bonus I got had some taxes withheld from it, so it didn't affect my April tax bill because the taxes paid side kept up with the income side.


But when I received an investment income bonus (i.e. cap gains distribution), I usually had it automatically reinvested. So, not only did I have no taxes withheld from it, I also didn't have the equivalent cash from it sitting around in my bank account to pay estimated taxes. This created an imbalance when April rolled around.


This time, however, unlike last year, I will be taking a large, year-end cap gain distribution in cash. While I have other uses already set up for some of the money, I will allocate some of it toward estimated taxes in early January to lessen the blow in April, probably paying about 2/3 of the taxes (state and federal) in January, allowing me to easily be in a "safe harbor" for each and avoid any penalties.