Estimated taxes

[kaneohe]

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]

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]

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]

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]

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]

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]

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]

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.

 

[Trooper]

Folks in states with income taxes should be aware that not all states followed the IRS guidelines for estimated taxes. I'm in AZ and just learned that my first 2020 estimated payment was due on 4/15!

 

[bingybear]

I've paid alone the normal timeline. The real question is will I owe more or less than I expected.

 

[samm]

eftps.gov to pay taxes

If you use eftps.gov to pay your taxes you can schedule multiple estimated tax payments in advance. This works particularly well when you are doing the 4 equal payments based on prior year taxes.

+100

Very helpful information! Thank you!

 

[Sunset]

Folks in states with income taxes should be aware that not all states followed the IRS guidelines for estimated taxes. I'm in AZ and just learned that my first 2020 estimated payment was due on 4/15!

You may want to withdraw (All AZ taxes for 2020) from an IRA , and withhold 100% for AZ.

To avoid any penalties.
One year I underestimated the IL withholding, and they charged me $200 penalty which was a huge percentage of the actual missed tax amount.

 

[Trooper]

You may want to withdraw (All AZ taxes for 2020) from an IRA , and withhold 100% for AZ.

To avoid any penalties.

Thanks. Is this because withheld amounts from IRA withdrawals are deemed to be paid throughout the tax year?
Of course I already went online and paid the Q1 and Q2 amounts.

 

[pb4uski]

Yes, any withholdings... even if done on Dec 31... are considered to have been done ratably throughout the year for the purpose of underpayment penalty calculations.

 

[Trooper]

OK, so I was able to cancel the 2 (late) quarterly payments I made to the State of Arizona. Then I went to Vanguard's site, where my IRA is held, and it appears that Vanguard doesn't support state tax withholding, only Federal. Anyone else have this experience?

 

[scrabbler1]

OK, so I was able to cancel the 2 (late) quarterly payments I made to the State of Arizona. Then I went to Vanguard's site, where my IRA is held, and it appears that Vanguard doesn't support state tax withholding, only Federal. Anyone else have this experience?

That's a pretty big weakness, not being able to allow state income tax withholding from IRA distributions. Fidelity allows it.

 

[pb4uski]

No, not a Vanguard weakness at all.... I do VT state withholding via Vanguard all the time. The choice is after the screen where you chose what account the net withdrawal is to go to.

Suggest that you call them. There might be something in the way your accounts settings are that is not showing the state withholding choice.

 

[Trooper]

Thanks pb4uski. I'll call Vanguard, but I believe they only withhold for certain states, as per the table here:

https://personal.vanguard.com/pdf/sarpsc.pdf

Note: We won’t withhold state tax for states not listed in this chart.

 

[Kwirk]

No, not a Vanguard weakness at all.... I do VT state withholding via Vanguard all the time. The choice is after the screen where you chose what account the net withdrawal is to go to.

Suggest that you call them. There might be something in the way your accounts settings are that is not showing the state withholding choice.

My experience is that it depends on your state. It's not an option for VA. I've tried. I have been able to do federal withholding.



Here's the Vanguard list: https://vanguard.com/pdf/sawtc.pdf Notice the "Note: We won’t withhold state tax for states not listed in this chart."