Quick sanity check on my estimated quarterly tax

[Tadpole]

Is it this simple?

If taking all my husband's RMD in the 2nd quarter means that 70% of our yearly income occurs in the first 2 quarters, is it sufficient that my taxes paid by the end of the second quarter are slightly larger than 70% of my taxes owed for the year?

For example, suppose the total tax owed for 2017 was exactly $10,000. Can I satisfy the law by paying at least $7,000 in taxes by the end of 2nd quarter?

 

[Texas Proud]

This is from memory and early in the morning so my brain is not yet working....


But, from what I remember about calculating the penalty, as long as you have paid more in estimated payments then what your tax liability is by the Jan 15th payment date you would not owe a penalty...

The qtrly penalty calculation is for the people who get a significant part of their income at the end of the year and want to show that they did not owe any taxes the first 3 quarters.... so the penalty is lower...



But, to answer your question... yes, it is that simple... (with caveat in first sentence)....

 

[Paracelsus]

Check with your state also as I've been penalized from my state taxes for not making every quarterly payment even though my payments reflected quarterly incomes.

 

[audreyh1]

Is it this simple?

If taking all my husband's RMD in the 2nd quarter means that 70% of our yearly income occurs in the first 2 quarters, is it sufficient that my taxes paid by the end of the second quarter are slightly larger than 70% of my taxes owed for the year?

For example, suppose the total tax owed for 2017 was exactly $10,000. Can I satisfy the law by paying at least $7,000 in taxes by the end of 2nd quarter?

I recommend you use the method based on prior year taxes (100% or 110% for income over $150K), divide by 4, and pay in four equal installments. It will probably be less than what you pay using the annualized income method.

For the annualized income method for Q2, you multiply your income received through May 31 by 2.5, calculate taxes on that amount, then you owe 45% of those taxes by June 15. This usually ends up being higher because multiplying by 2.5 pushes you into a higher tax bracket for that quarter. By year end without additional large lumps of income, you'll be back to your "normal" tax bracket.

But if you divide last year's taxes* by 2 (that's 2 equal quarterly payments due April 15 and June 15), and it's less than the above value, you only need to have paid half the prior year's taxes by June 15.

*if prior year income was $150K or higher you have to multiply prior year taxes by 110% (1.1) and dive by 4 to get your 4 quarterly equal installments.

 

[audreyh1]

This is from memory and early in the morning so my brain is not yet working....


But, from what I remember about calculating the penalty, as long as you have paid more in estimated payments then what your tax liability is by the Jan 15th payment date you would not owe a penalty...

The qtrly penalty calculation is for the people who get a significant part of their income at the end of the year and want to show that they did not owe any taxes the first 3 quarters.... so the penalty is lower...



But, to answer your question... yes, it is that simple... (with caveat in first sentence)....

If you have not paid estimated taxes of at least three of the four equal installments (either based on 100%/110% of prior year taxes, or 90% of current year taxes) by each of the quarter deadlines of April 15, June 15 and August 15, you don't get out of the penalty box unless you can show that your income was all paid to you in Q4 using form 2210. Otherwise you can't just pay 90% of your estimated taxes by Jan 15 and avoid penalty.

You can reconcile in Jan 15 and pay less than the final quarterly equal installment if you've already exceeded 90% of taxes owed to the year. But to pay less than that for prior quarters you have to calculate taxes owed each quarter using the annualized income method and then file out form 2210 to show your income and taxes owed each quarter.

 

[Tadpole]

Check with your state also as I've been penalized from my state taxes for not making every quarterly payment even though my payments reflected quarterly incomes.

I live in WA state (sales tax only state) so it isn't a problem.

 

[Tadpole]

I recommend you use the method based on prior year taxes (100% or 110% for income over $150K), divide by 4, and pay in four equal installments. It will probably be less than what you pay using the annualized income method.

Thanks, for some reason I thought the quarter of the income had to be aligned with the quarter of the tax estimate.

For the annualized income method for Q2, you multiply your income received through May 31 by 2.5, calculate taxes on that amount, then you owe 45% of those taxes by June 15. This usually ends up being higher because multiplying by 2.5 pushes you into a higher tax bracket for that quarter. By year end without additional large lumps of income, you'll be back to your "normal" tax bracket.

Whoa.... When the extra income is in the first half, this really is way, way too high. The half year tax estimate came out more than the yearly tax.

But if you divide last year's taxes* by 2 (that's 2 equal quarterly payments due April 15 and June 15), and it's less than the above value, you only need to have paid half the prior year's taxes by June 15.

*if prior year income was $150K or higher you have to multiply prior year taxes by 110% (1.1) and dive by 4 to get your 4 quarterly equal installments.

That's easy. Thanks.

 

[Texas Proud]

If you have not paid estimated taxes of at least three of the four equal installments (either based on 100%/110% of prior year taxes, or 90% of current year taxes) by each of the quarter deadlines of April 15, June 15 and August 15, you don't get out of the penalty box unless you can show that your income was all paid to you in Q4 using form 2210. Otherwise you can't just pay 90% of your estimated taxes by Jan 15 and avoid penalty.

You can reconcile in Jan 15 and pay less than the final quarterly equal installment if you've already exceeded 90% of taxes owed to the year. But to pay less than that for prior quarters you have to calculate taxes owed each quarter using the annualized income method and then file out form 2210 to show your income and taxes owed each quarter.

YES.... I decided to take a look at the form and my stmt above is wrong...

It first goes to the process of figuring up what you owe after withholding (they assume withholding is even throughout the year even if it is not)... if over $1000 then they go to exemptions... after that it is by quarter and if you do not have enough paid in for the qtr you can get a penalty for that quarter... you can stop the bleeding by paying more in a later quarter but not get rid of the penalty...