Poll: Estimated Taxes

[Walt34]

I pay only state estimated taxes, not federal. The pension plan will do withholding on federal but not state since we moved to WV, which is reasonable, since it isn't realistic to expect them to calculate tax rates for the other 49 states.

The state of WV helpfully sends a form about a month before they're due so I just write a check. I use TT to calculate the amount and I've found it accurate.

 

[Blue Collar Guy]

talk about a timely post

so i had my taxes prepared . i owe every year so i file late, i owe 12000 ish to the feds and 7000 ish to new york city and state, the tax guy says hey u have a 300 penalty to new york and 244 federal tax penalty, u need to send in quarterly payments,ok so i leave with 10 envelopes, 4 for ny state 4 for the feds and 1 each for the due taxes, i look over last years taxes, turns out the news was worse, i owed 18k to the feds and 9700 to the state, the penalty was almost 900, better late than never, next year the penalty should be lower if any, the money was just sitting in the check book not earning anything so this is found money, the cause was from all the interest dividends and capital gains on the mutual funds, i remember him telling me this last year, but i was so upset i had to write 2 checks for over 28,000 for taxes, i dismissed this penalty thing, didnt know it was so high,

 

[Lsbcal]

so i had my taxes prepared . i owe every year so i file late, i owe 12000 ish to the feds and 7000 ish to new york city and state, the tax guy says hey u have a 300 penalty to new york and 244 federal tax penalty, u need to send in quarterly payments,ok so i leave with 10 envelopes, 4 for ny state 4 for the feds and 1 each for the due taxes, i look over last years taxes, turns out the news was worse, i owed 18k to the feds and 9700 to the state, the penalty was almost 900, better late than never, next year the penalty should be lower if any, the money was just sitting in the check book not earning anything so this is found money, the cause was from all the interest dividends and capital gains on the mutual funds, i remember him telling me this last year, but i was so upset i had to write 2 checks for over 28,000 for taxes, i dismissed this penalty thing, didnt know it was so high,

At today's interest rates it is better to just overpay taxes and get a refund. Unless you have stock investments that you are sure are going to outperform the penalty amount, but that is an uncertain thing as nobody can be sure about returns.

If you are apt to forget the estimated taxes, maybe bump up your withholding a lot?

 

[Blue Collar Guy]

thank you

i have the remaining 6 envelopes in my checkbook with a rubber band, the bride (who is the brains of the operation) put a note on the calendar and set a reminder on her cell reminder calendar, and i agree with you ill over pay and take the refund no more major penalties for us

 

[copyright1997reloaded]

When I retired, I started doing estimated...but sometimes forgot when it came to the quarter dates.

Since I also get a pension, I solved the issue by increasing the withholding on it until I stopped owing at tax time (or more importantly didn't have to pay a penalty).

 

[CardsFan]

This will be my first year with no W-2 income (and there is no pension, or SS right now). Last year I had some W-2 income in Jan/Feb, and then had withholding taken from my IRA distribution, which covered more than I owed. This included a chunk of cash for 2017.

I will probably take another distribution later in the year, with some withholding to cover it and an anticipated tIRA/RothIRA conversion.

Question for you experienced folks: I also have some interest and dividends coming in from the after tax account, throughout the year. Do I risk being assessed a penalty since I will only be paying later in the year, through the withholding, even though some small part of my income is earlier in the year?

FYI, for the poll I voted "some other method:.

 

[kaneohe]

...................................
I will probably take another distribution later in the year, with some withholding to cover it and an anticipated tIRA/RothIRA conversion.
............................ I also have some interest and dividends coming in from the after tax account, throughout the year. Do I risk being assessed a penalty since I will only be paying later in the year, through the withholding, even though some small part of my income is earlier in the year?

..................................

Provided you withhold "enough" , there should be no problem with paying later in the year. Withholding is more equal than estimated taxes.......timing matters for the estimated taxes but not for withholding (provided, of course, it is withheld in the correct yr) . Withholding is considered as being paid evenly throughout the year as is your income (unless you want to declare as lumpy).

 

[CardsFan]

Thanks, I was hoping that was the case.

 

[gerntz]

I calculate what I think our taxes will be based on income & pay them in Dec as part of the annual IRA withdrawal. It's technically same as earned income withholding.

 

[pb4uski]

I use the annualized income installment method typically would owe no tax were it not for Roth conversions that I do each December and make an estimated payment in January. I use EFTPS to make the payment.

 

[scrabbler1]

When I retired, I started doing estimated...but sometimes forgot when it came to the quarter dates.

Since I also get a pension, I solved the issue by increasing the withholding on it until I stopped owing at tax time (or more importantly didn't have to pay a penalty).

And remember that each "quarter" is not necessarily 3 months or coincide with calendar quarters (3/31, 6/30, 9/30, and 12/31). Instead, the estimated tax quarters end 3/31, 5/31, 8/31, and 12/31, so the number of months are not 3-3-3-3 but 3-2-3-4.

This unevenness is partly the cause of why I make only 1 estimated tax payment in the 4th quarter. Besides my monthly dividend income being slightly skewed toward the end of the year, my quarterly dividends pay in months 4, 7, 10, and 12, so 2 of those payments occur in the 4th tax quarter. Then my big year-end cap gains distributions fall in that already skewed 4th tax quarter. All of this taken together results in nearly 40% of my income in that 4th tax quarter.

 

[donheff]

I use withholding from my pension to cover all taxes, Federal and State, including DW's self employment tax which would otherwise require quarterlies. I basically use the previous tax years actual plus anything unusual that I anticipate. E.G. I applied a refund from last year (due to high medical) to this year because I anticipated a substantial CG from a second house sale.

 

[audreyh1]

I have the estimated tax payment due dates on my computer calendar, and I get reminders 5 days in advance.

This year I finally got brave enough to link my EFTPS account to one of my savings accounts where I set aside funds I know will be going to taxes. So I set up automatic scheduled payments for the whole year. Don't have to worry about it until next year.

 

[W2R]

I have the estimated tax payment due dates on my computer calendar, and I get reminders 5 days in advance.

This year I finally got brave enough to link my EFTPS account to one of my savings accounts where I set aside funds I know will be going to taxes. So I set up automatic scheduled payments for the whole year. Don't have to worry about it until next year.

I love the way that EFTPS just takes care of that. I do check my bank account on the due date to make sure it takes the money each time, but so far so good. I have my Louisiana estimated taxes set up for automatic scheduled payments the same way.

I am so glad that you posted a number of times about EFTPS, because your posts encouraged me to finally look into it. IMO, it's one of those electronic services that actually does work just as one might wish.

 

[Gotadimple]

I have the estimated tax payment due dates on my computer calendar, and I get reminders 5 days in advance.

This year I finally got brave enough to link my EFTPS account to one of my savings accounts where I set aside funds I know will be going to taxes. So I set up automatic scheduled payments for the whole year. Don't have to worry about it until next year.

Attagirl! Now if you use a checkbook program (i.e. Quicken, MoneyDance), set up a reminder to automatically post the payment in the register.

- Rita

 

[athena53]

Are you using TurboTax? Sometimes I've had to open Form 2210 to get them to do all the calculations.

Yes, I'm using TurboTax, and did for 2015 as well so it should have had access to the previous year's figures. TT may have messed up. I'm about to leave on a trip and should wait till it's been received anyway before I file any necessary revisions. It's only $50 but I'll find a good use for it!

 

[audreyh1]

I love the way that EFTPS just takes care of that. I do check my bank account on the due date to make sure it takes the money each time, but so far so good. I have my Louisiana estimated taxes set up for automatic scheduled payments the same way.

I am so glad that you posted a number of times about EFTPS, because your posts encouraged me to finally look into it. IMO, it's one of those electronic services that actually does work just as one might wish.

Well - this is the first time I have scheduled more than one payment. Finally late last year the light bulb went on, and I setup a connection to one of my high yield savings accounts instead of my checking account. Up till now I had been transferring the funds to my checking account, and then scheduling the payment.

It meant though that I had to trust the IRS with access to my savings account. Dealing for >10 years with no issues in terms of withdrawals has helped.

 

[audreyh1]

Attagirl! Now if you use a checkbook program (i.e. Quicken, MoneyDance), set up a reminder to automatically post the payment in the register.

- Rita

Actually - I have this too. I have all scheduled payments shown in Quicken, so I see when bills are due all the time. This is one of the biggest features I use in Quicken.

But my electronic calendar usually notifies me about quarterly payments before Quicken does. I have a few bill related things in the calendar - mostly when various statements close and I will see the new bill. Quicken has the due dates and amounts.

 

[Fedup]

I use the annualized income installment method typically would owe no tax were it not for Roth conversions that I do each December and make an estimated payment in January. I use EFTPS to make the payment.

If you can pay tax in January then why does everybody has to pay estimate tax. I'm thinking of doing it this way but still have question. My only concern of paying ahead is that there potential fraud. Therefore I would rather pay a bit of penalty at tax time and not having to worry about fraud.

 

[pb4uski]

Sorry, I wasn't clear. When I say paying in January, it's the January after the end of the tax year. So, I would pay my 2016 tax with my January 2017 estimated payment.

I can do this because our income that causes us to have a tax liability is concentrated in the last quarter of the tax year, principally my Roth conversion for the year. If someone has regular income throughout the year, the approach I use doesn't work.

 

[Trooper]

This had me wonder: Does the IRS really concern itself with the timing of income and the associated taxes? If one met either the safe harbor or the 90% rule, would the IRS penalize you if the timing were off? Has anyone been penalized for estimating and paying the correct amount, but not in the correct 'quarters'?

 

[pb4uski]

Yes, they do.... otherwise people would just pay their estimated taxes in the last quarter of the year.

 

[audreyh1]

This had me wonder: Does the IRS really concern itself with the timing of income and the associated taxes? If one met either the safe harbor or the 90% rule, would the IRS penalize you if the timing were off? Has anyone been penalized for estimating and paying the correct amount, but not in the correct 'quarters'?

Yes! The IRS really does care about income timing during the year and when taxes are paid.

The safe harbor rule requires four equal payments by the quarterly deadlines. As does the 90% rule. If you start out with lower payments and make higher payments later in the year you had better show that your income was low early in the year and higher later.

There are loopholes - such as using withholding from pension or IRA withdrawal late in the year to "catch up" estimated tax payments.

 

[FUEGO]

I estimate taxes based on my projected income for the year. I'm targeting an AGI of $40-42k so I don't owe regular income taxes (family of 5) but some of my income is self employment income, so I owe a couple thousand $ of self employment taxes. This year I'm paying $600 per quarter which should more than cover my 2017 tax liability.

I pay using a credit card to get the points (and help me meet minimum spending goals to snag credit card sign up bonuses). All in all, it takes about 5 minutes. I set a quarterly recurring reminder on my google calendar with the link to the tax payment processor, along with a note to pay $600 (or whatever my quarterly payment needs to be).

Just started making these payments last year when DW joined me in retirement, so I'm not sure if this is the absolute best process but it's pretty simple and helps me attain other goals (like spending $ on a credit card).

 

[FUEGO]

Yes! The IRS really does care about income timing during the year and when taxes are paid.

Uh oh. I paid my April and June quarterly estimated payments at the same time (in fact, in the exact same payment). I paid $600x2 = $1200. I didn't see anywhere to designate which quarter I'm making estimated payments for. Hopefully the IRS won't mind getting the 2nd quarter payment a little early