Estimated taxes

[VFK57]

Quote:

Originally Posted by dixter I just pay the penalty... its not that much and I get to use the money all year...

With negative rates already here, Tax penalty could be higher than income in any saving account. A few weeks ago I opened a saving acct with high yield 1.75% only to find yesterday that they already lowered the rate to 1.25%

[dixter]

I don't use a bank for income.... you will never ever beat inflation that way... you put your money into their accounts.. they pay you 1.25% and they use your money to loan out at interest rates of 4.49% and in the same breath the teller at your local credit union proudly announces they are a " Non-profit " organization and welcome you as a credit union member... BS.... they are a cash holding option only... did you know that institutions like Fidelity keep your cash positions in MM funds... drill down to see where Fidelity keeps your cash at... and you will see they choose a bank for you... and that bank loans the money out and pays you to use your cash at MM rates....

[samm]

More details at Investopedia

https://www.investopedia.com/article...lines-2016.asp

[schellem]

Quote:

Originally Posted by PaunchyPirate Last year, I made 3 equal estimated tax payments based on my best guess I settled on in April. But then in December, I sold a lot of stock that wasn't originally planned for. I then made a large estimated tax payment in December to cover what I thought would be due. In order to avoid a significant penalty, I used the Annualized Income (AI) method when I filed taxes. It's easy to do if you use TurboTax (and I assume other self-filing software). However, even with TurboTax, I had to build a spreadsheet that itemized every single income transaction for the year (every stock sale, dividend/interest payment, etc.). Not hard to do from bank/brokerage statements. You then sum up the income into the buckets that the IRS needs for the AI method. Pay special attention to the months that fall in each category, it's not simply 3 months to each quarter. Once I understood what was needed, it was quite easy to generate the numbers needed. The AI method saved me hundreds of dollars in penalty. I no longer fear doing it again if needed.

I've used TurbTax for awhile but wonder how you use the AI method. Is there a wizard feature for this or do you just go find the form and fill it out?

[schellem]

I read this tip somewhere and not many know this but if you already have any taxes being withheld from a pay check or or an IRA distribution then you don't have to make equal quarterly estimated payments.

[kaneohe]

Quote:

Originally Posted by schellem I read this tip somewhere and not many know this but if you already have any taxes being withheld from a pay check or or an IRA distribution then you don't have to make equal quarterly estimated payments.

not clear what your point is........if you are withholding:
1) you don't have to make estimated payments or
2)you don't have to make equal quarterly estimated payments.

[schellem]

Quote:

Originally Posted by kaneohe not clear what your point is........if you are withholding: 1) you don't have to make estimated payments or 2)you don't have to make equal quarterly estimated payments.

Actually both. I usually pay what ever cap gains taxes from equities I may have sold during the quarter but if I had some losses for a quarter I don't make a payment.

[kaneohe]

Quote:

Originally Posted by schellem Actually both. I usually pay what ever cap gains taxes from equities I may have sold during the quarter but if I had some losses for a quarter I don't make a payment.

If your withholding is enough to get you to safe harbor, then you don't have to pay estimated taxes. If your w/h is not enough to get you to safe harbor, then your estimated taxes need to make up the difference and if they are not paid in equal quarterly installments, you may have to explain via SchAI of F2210 or may be penalized by IRS for late payments even if total amount w/ w/h is enough for safe harbor.

[schellem]

Quote:

Originally Posted by kaneohe If your withholding is enough to get you to safe harbor, then you don't have to pay estimated taxes. If your w/h is not enough to get you to safe harbor, then your estimated taxes need to make up the difference and if they are not paid in equal quarterly installments, you may have to explain via SchAI of F2210 or may be penalized by IRS for late payments even if total amount w/ w/h is enough for safe harbor.

Maybe I misunderstood what I read or it was wrong but this is what I've been doing for probably close to 10 years without any issues.

Have I just been lucky?

[Animorph]

Here's the Publication 505 chart that explains who needs to pay estimated taxes:

https://www.irs.gov/pub/irs-pdf/p505.pdf

[kaneohe]

Quote:

Originally Posted by schellem Maybe I misunderstood what I read or it was wrong but this is what I've been doing for probably close to 10 years without any issues. Have I just been lucky?

Possibly.........I know folks who should but have never paid estimated taxes and have never gotten a penalty and therefore see no reason to change. Perhaps it is IRS priority.......the penalties are relatively small and may not be worth their time and effort.

However if you study F2210, you will see that IRS assumes income is received evenly during the yr and expects payments accordingly. It is ok to pay early so the payments are front-loaded during the yr. However if you only pay 1 estimated tax payment in Q4, that is an easy sign that there might be late payments in the earlier quarters. If you can prove that the payments matched the income timing wise you are ok but it is a bit of work to do that.

[scrabbler1]

Quote:

Originally Posted by schellem Maybe I misunderstood what I read or it was wrong but this is what I've been doing for probably close to 10 years without any issues. Have I just been lucky?

Except for one year, I have made estimated tax payments only in the 4th quarter and have never filed Form 2210. The years include the last 10 when I was working and the next 10 after I retired in 2008. The reasons are how my investment income is realized more toward the very end of the year and how the 4 "quarters" for estimated tax purposes are not of equal length - instead of 3-3-3-3 months they are actually 3-2-3-4, so the 4th quarter has an extra month. Taken together, I realize at least half of my investment income in the 4th quarter.

If I have to make estimated tax payments, I send in about half in the 4th quarter and the rest the following April, unless I get a HUGE windfall in the 4th quarter, when I'd pay more in estimated taxes to make sure I reach a safe harbor. Never had a problem.

[rjk514]

Have figured 2019 tax, 1st time ever had to pay federal taxes..Never had the income..now do to 2019 RMD income our fed tax bill is $2500.00..tax program states we need to pay Estimated tax for 2020...But...do to fed.Cares act (The CARES Act suspends required minimum distributions for the year 2020 for all qualified retirement plans and IRAs)
therefore. for tax year 2020 ,income will not meet Est. Tax rules..
Do I need to send 2020 est tax as we will not meet income guidelines for 2020.
Your thoughts...

[cathy63]

Quote:

Originally Posted by rjk514 Have figured 2019 tax, 1st time ever had to pay federal taxes..Never had the income..now do to 2019 RMD income our fed tax bill is $2500.00..tax program states we need to pay Estimated tax for 2020...But...do to fed.Cares act (The CARES Act suspends required minimum distributions for the year 2020 for all qualified retirement plans and IRAs) therefore. for tax year 2020 ,income will not meet Est. Tax rules.. Do I need to send 2020 est tax as we will not meet income guidelines for 2020. Your thoughts...

If your tax liability for 2020 will be less than $1000, then you don't need to pay estimated taxes this year.

[SecondCor521]

Quote:

Originally Posted by rjk514 Have figured 2019 tax, 1st time ever had to pay federal taxes..Never had the income..now do to 2019 RMD income our fed tax bill is $2500.00..tax program states we need to pay Estimated tax for 2020...But...do to fed.Cares act (The CARES Act suspends required minimum distributions for the year 2020 for all qualified retirement plans and IRAs) therefore. for tax year 2020 ,income will not meet Est. Tax rules.. Do I need to send 2020 est tax as we will not meet income guidelines for 2020. Your thoughts...

I'd recommend recalculating your estimated taxes based on your new planned RMDs. Hopefully you can go back into the tax program you used and update the plan and get the new result.

[rjk514]

I plan on taking no RMD's for 2020, per virus cares act..keeping 2020 income and tax below $1000 limit for estimated tax payments to come into play..pay full $2500 tax for 2019..and start estimated payments in 2021, as RMD's will be required then....does this sound right, ??keep me out of IRS penalties ..

[CardsFan]

Quote:

Originally Posted by rjk514 I plan on taking no RMD's for 2020, per virus cares act..keeping 2020 income and tax below $1000 limit for estimated tax payments to come into play..pay full $2500 tax for 2019..and start estimated payments in 2021, as RMD's will be required then....does this sound right, ??keep me out of IRS penalties ..

Sounds like you do not need to make any quarterly payments.

In the future, consider having taxes with held from the RMD. No need for quarterlies, and it does not matter when you take the RMD and pay the taxes. The IRS assumes it was evenly paid. Just another option.

[Sunset]

Quote:

Originally Posted by rjk514 I plan on taking no RMD's for 2020, per virus cares act..keeping 2020 income and tax below $1000 limit for estimated tax payments to come into play..pay full $2500 tax for 2019..and start estimated payments in 2021, as RMD's will be required then....does this sound right, ??keep me out of IRS penalties ..

Or you could do a Roth conversion of whatever the RMD amount was/would be, so you would pay taxes, but you would get the money into a ROTH so it could grow tax free.

Since it seems you don't need to take it out to spend it.

[triangle]

Quote:

Originally Posted by pb4uski So if you pay $6,500 on July 15, and $3,250 on Sept 15 and $3,250 on jan 15, 2021 then you should meet the safe harbor exemption since you'll have paid more than your 2019 tax in 4 installments (adjusted for the change in teh due date of the first 2 payments due to COVID accomodations announced). Right? Then you can pay your $12.4k capital gains tax when you file your return.

Isn't the 2nd Quarter 2020 estimate due by June 15? Or did that also get pushed into July along with the 2019 year end filing.

My memory of the details are now vague, but I found it a little confusing when the Covid19 shutdown started that my state allowed 2019 tax year filings to be delayed, but did not waive any penalty that might be associated with a late filing (because of the way state law was written and the legislature had not yet taken any action). So in effect it was not much of a waiver and I filed in April. Likewise I have kept to the normal 1040-ES payment calendar to avoid any issues with fees associated with late payments.

[cathy63]

Quote:

Originally Posted by triangle Isn't the 2nd Quarter 2020 estimate due by June 15? Or did that also get pushed into July along with the 2019 year end filing. My memory of the details are now vague, but I found it a little confusing when the Covid19 shutdown started that my state allowed 2019 tax year filings to be delayed, but did not waive any penalty that might be associated with a late filing (because of the way state law was written and the legislature had not yet taken any action). So in effect it was not much of a waiver and I filed in April. Likewise I have kept to the normal 1040-ES payment calendar to avoid any issues with fees associated with late payments.

Yes, the IRS moved both the 1st and 2nd estimated payments for 2020 to July 15.