Estimated taxes

[cathy63]

Will there be a waiver of penalties this year for underpayment of taxes you think?

I had only applied our 2019 refund to our 2020 taxes but now I just made $60,000+ on Stemline stock and will have to pay back all of our ACA subsidy plus a lot of short term gains.

I could really stimulate the economy if I didn't have to send in $$$ in estimated payments this year.

Wait....I was just reading...so if last year we had a refund (only due to the fact that I had made $8,000 in estimated tax payments), we won't owe any penalty this year even if we don't make payments?

I don't think they'll automatically waive penalties for underpayment. That hasn't been in any of the legislative discussion. You can always request a waiver if you're affected by a disaster or unusual circumstances, and I expect "I came down with Covid-19" or some variation on that would qualify.

Whether you got a refund on your 2019 return is not related to penalties on your 2020 return. You need to hit one of the safe harbors.

 

[cathy63]

This is a topic of interest to us. We will elect not to take any RMD's this year which will reduce our state and federal taxes by roughly $30,000. In past years we have always paid 100% of our estimated federal and state taxes in the month of December out of our annual RMD withdrawal and deposited the difference into our brokerage account. We have never withheld from our pension/social security checks during the year, which we liked from a cash flow perspective. Waiting until December each year has enabled us to be very accurate. Our tax return for 2019 showed a tax refund of $4 from the Feds and a payment due of $2 to the state.

So this year will have to be different. Pension and social security income is known and does not fluctuate. We keep a fairly detailed tracker of all other income from dividends and interest from taxable brokerage accounts and bank CD's and savings accounts. I update the tracker as the estimated number becomes real each month and that tracker feeds into our own spreadsheet tool for calculating our taxes. My plan is to make payments of 1/4 of our evolving estimate of taxes when each payment is due (2 in July, 1 in September and 1 in January). We've chosen this method over starting to withhold from the Pensions and Social Security payments, as I think it gives us more control. Does this plan make sense to any of you who are accustomed to estimating?

It might not be as simple as paying 1/4 of the current annualized total in each quarter. If you get a large part of your income in Dec, then in Jan you'll need to pay the total due less the amount already paid, which could be more than 1/4th of your total tax. If you do make uneven payments, you'll need to fill out form 2210 when you file your 2020 return.

If you have enough info to project out your dividend and interest income for the rest of the year, you can figure your total expected tax and divide that by 4.

 

[fisemper]

If you do make uneven payments, you'll need to fill out form 2210 when you file your 2020 return. .

So this is something I'll need to do since all my gains were in the 1st & 2nd quarters? Really just March and April. But after I don't plan to have much besides dividends from savings accounts which will be very little.

 

[cathy63]

So this is something I'll need to do since all my gains were in the 1st & 2nd quarters? Really just March and April. But after I don't plan to have much besides dividends from savings accounts which will be very little.

You actually only need form 2210 if you would otherwise have an underpayment penalty that you are trying to get waived. If you make larger payments in Q1 and Q2 and you reach one of the safe harbors, then you probably won't need it. If you use TurboTax, and I assume other software packages like Block, they will figure out whether you need it and suggest that you fill it out if it looks like there's a penalty.

 

[fisemper]

You actually only need form 2210 if you would otherwise have an underpayment penalty that you are trying to get waived. If you make larger payments in Q1 and Q2 and you reach one of the safe harbors, then you probably won't need it. If you use TurboTax, and I assume other software packages like Block, they will figure out whether you need it and suggest that you fill it out if it looks like there's a penalty.

OK, I should be good as long as I pay by 15 July. I use freetaxusa.com and have never had any issues, plus it is free and I don't have to worry about state taxes

 

[pb4uski]

My 2019 tax was 12.9K before the realized gains, now adding the extra 12.4K.

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.

 

[Clone]

So let's say that you owed $10k and paid $0, $0, $0 and $10k. They would assume that you owed $2.5k a quarter so were underpaid $2.5k, $5.0k, $7.5k and $0... so broadly speaking you would owe then 9 months interest on $2.5k, 6 months interest on $2.5k, 3 months interest on $2.5k... so at 5% for easy figuring that would be ~$190.

State of Minnesota- We were making quarterly estimated payments. DW was in charge of mailing them in. It is a second state filing for us, and a relatively minimal amount of income. So, $150 each quarter. DW thought that Q1 was due on the 15th, but it was actually due on the 1st. When we did taxes, they threw a penalty flag, and said that because we were late with the payment, we owed a penalty. OK, TurboTax, how much? $1. No big deal. Yup, we will file electronically, here is a credit card for the $25. 15 seconds later- from TurboTax- I'm sorry, but because of the penalty, you need to mail in your forms.

And of course, State of Minnesota- the check goes one place, the main form goes another place, and I think the backup documents went somewhere else. About an inch thick stack of paper to be split up. What a pain.

Two years later, we get a letter from State of Minnesota- Never mind, we figured it wrong, here is a check for $1. Government work at it's finest.

 

[fisemper]

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.

I'm not following what you say. Since I am still working I have payroll tax. I only need to add the 12.4, which I'm bumping to 13K. If it were all made in the first two quarters your saying I can still split that up over the rest of the year and not be penalized as long as I at beat my 2019 taxes? I will do that just on payroll alone.

 

[Golden sunsets]

It might not be as simple as paying 1/4 of the current annualized total in each quarter. If you get a large part of your income in Dec, then in Jan you'll need to pay the total due less the amount already paid, which could be more than 1/4th of your total tax. If you do make uneven payments, you'll need to fill out form 2210 when you file your 2020 return.

If you have enough info to project out your dividend and interest income for the rest of the year, you can figure your total expected tax and divide that by 4.

Somewhere in the back of my mind, I think I recall that if the amount of underpayment is less than $1,000 then there is no penalty. Is this correct, or does this rule only apply to lower AGI levels?

 

[pb4uski]

I'm not following what you say. Since I am still working I have payroll tax. I only need to add the 12.4, which I'm bumping to 13K. If it were all made in the first two quarters your saying I can still split that up over the rest of the year and not be penalized as long as I at beat my 2019 taxes? I will do that just on payroll alone.

Sorry, I didn't understand that you were still working and having tax withheld.

As long as your total withholdings are at least equal to your $12.9k 2019 tax (or 110% of your 2019 tax if your income is high) then you should meet the safe harbor and not have to pay the additional $12.4k for capital gains tax until you file your return.

Also see post #9 of this thread....

• Prior year safe harbor: If you use your 2019 tax bill as a barometer for your 2020 liability, you are likewise sure to be penalty-free as long as the taxes you pay are at least 100% of your 2019 bill. However, if your adjusted gross income for 2019 was more than $150,000 ($75,000 for those who are married filing separately), the 2020 payments must be at least 110% of the 2019 bill.

If you your withholdings will cover 100% of your 2019 taxes of $12.9k then you should be all set... if your withholding won't cover your 2019 taxes then either increase your withholdings or make an estimated payment for the difference.

 

[fisemper]

Sorry, I didn't understand that you were still working and having tax withheld.

As long as your total withholdings are at least equal to your $12.9k 2019 tax (or 110% of your 2019 tax if your income is high) then you should meet the safe harbor and not have to pay the additional $12.4k for capital gains tax until you file your return.

Also see post #9 of this thread....



If you your withholdings will cover 100% of your 2019 taxes of $12.9k then you should be all set... if your withholding won't cover your 2019 taxes then either increase your withholdings or make an estimated payment for the difference.

Thanks. Makes sense. I'm probably just going to pay up-front because everything came from stock gains. If I pay now then I'll be able to keep from tempting myself to buy individual stocks again. I'm still waiting on the USAA/Schwab before I can setup my long term plan. Only have a few weeks left though.

 

[pb4uski]

Here is your answer:
https://lmgtfy.com/?q=when+are+june+15th+estimated+tax+payments+due+this+year?

 

[dixter]

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

 

[dixter]

should have added to my post above before I hit the reply...

I'm not filing or doing anything during this year as things seem to be changing... I have the money to pay my taxes for 2019 but they moved it to July 15... and I keep hearing they may change it again... who knows... taxes may go away for a while... its easier for me to hold back taxes than it would be for me to ask the IRS to send me back some of my tax money... we have not even gotten the stimulus money yet... and I have a bad feeling we wont and will need to get it via my 2020 tax forms next year instead... I"m holding on to my money until the last minute...

 

[kaneohe]

Somewhere in the back of my mind, I think I recall that if the amount of underpayment is less than $1,000 then there is no penalty. Is this correct, or does this rule only apply to lower AGI levels?

there is such a rule. However it applies only when your expected payment less
WITHHOLDING is less than 1K. Does not apply if your payment is estimated taxes.

https://www.irs.gov/pub/irs-pdf/f2210.pdf
see lines 6,7

 

[VFK57]

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]

Investopedia explanation of estimated payments

More details at Investopedia

https://www.investopedia.com/articles/personal-finance/020316/estimated-tax-deadlines-2016.asp

 

[schellem]

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]

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]

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]

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]

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