Q3 Estimated Taxes Due Today

[kaneohe]

Quote:

Originally Posted by scrabbler1 ........................................ Form 2210 makes no sense if Form 1040-ES, when its similar worksheet was completed at the start of the year, indicated that no estimated tax was due in any quarter going forward.

I think the problem is that there are 2 kinds of safe harbors:
1) a "hard" safe harbor: based on prior yr numbers like 100(110)% of last yrs
taxes. If you do this one and meet it, you're safe because you know exactly what you need to pay.
2) a "soft" safe harbor: based on current yr numbers.....as you know there can be uncertainty about this yrs numbers......sometimes a lot. Owing less than 1K for current yr is that kind of uncertain safe harbor so it can make no sense in reality.

This might explain why you got some small estimated payments in the early quarters when you did Sch AI. Your safe harbor was probably based on prior yr taxes when you probably did pay taxes. Even if you paid only 800, your
safe harbor would be 800 or 200/qtr , but not 0.

As suggested by both Montecfo and audreyh1, either grab the "hard" safe harbor or continually monitor your situation during the yr, esp. Q4.

[jollystomper]

Quote:

Originally Posted by pb4uski In early December I sketch out my tax return for the year in Excel and I update it occasionally during the month... in late December I'll do a tIRA distribution to pay my estimated tax for 2019.... since it is a withholding the IRS and the state count it as having been made evenly throughout the year so I don't have to worry about underpayment penalties or do that pesky Form 2210 Schedule AI. P.S. Doesn't work for those under 59 1/2 unless you don't mind the 10% early withdrawal penalty.

I have started doing this (thanks to you, who gave me this idea). My different twist is that if my retirement accounts appear to be at a "peak" (my definition of a "peak" being they have grown beyond what I expected/need from them this year, not trying to time the market), I will make a withdrawal for estimated taxes. Since this is the first year I am doing this, I will see how it works out.

[scrabbler1]

Quote:

Originally Posted by N02L84ER I could understand Scrabblers situation if the first 3 "quarters" tax calculations and "expected total income" tax came in under $1000 total and then the late in the year capital gains distributions cause the loss of PTC which boosts him way over $1000 total tax safe haven.

You understand correctly, sir (or ma'am). Furthermore the big late-year cap gain distribution raised my taxes due, even without the TC. But losing the PTC also removed any possible offset to the taxes due.

[scrabbler1]

Quote:

Originally Posted by kaneohe I think the problem is that there are 2 kinds of safe harbors: 1) a "hard" safe harbor: based on prior yr numbers like 100(110)% of last yrs taxes. If you do this one and meet it, you're safe because you know exactly what you need to pay. 2) a "soft" safe harbor: based on current yr numbers.....as you know there can be uncertainty about this yrs numbers......sometimes a lot. Owing less than 1K for current yr is that kind of uncertain safe harbor so it can make no sense in reality. This might explain why you got some small estimated payments in the early quarters when you did Sch AI. Your safe harbor was probably based on prior yr taxes when you probably did pay taxes. Even if you paid only 800, your safe harbor would be 800 or 200/qtr , but not 0. As suggested by both Montecfo and audreyh1, either grab the "hard" safe harbor or continually monitor your situation during the yr, esp. Q4.

I have used each type of safe harbor over the years, so I agree there is a difference between the firmness of each.

The $1,000-taxes-due safe harbor can have other quirks. My taxes due have often been either just above or just below $1,000. If it's under $1,000, then I can simply pay the whole amount in April. But suppose it is just over $1,000, say $1,020, and I don't meet any of the other safe harbor provisions. Then, in theory, I would have to pay $255 each quarter for 4 quarters. Pretty weird huh? What I have done in that instance is to simply pay half of it in the 4th quarter and the other half in April. The IRS has never cared, as my taxes due in April are around $500. I suppose with my low tax bill, I am flying under the IRS's radar. I have done this several times since I ERed.

What I do not want to do, for sure, is to pay a whole lot in estimated taxes in the 4th quarter (or throughout the year), assuming I will not qualify for the PTC, then end up qualifying for the PTC and have to file for a refund in April (or sooner) of what I just gave the IRS. To me, that is just dumb, dumb, dumb!

With the amount of the PTC at stake growing a lot in the last few years, it will not only offset my taxes due, but it by itself will force me to file for a refund because I could not receive it as an advance credit on my HI premium this year. That is, unless I go over the cliff again.

[kaneohe]

Quote:

Originally Posted by scrabbler1 .............................. What I do not want to do, for sure, is to pay a whole lot in estimated taxes in the 4th quarter (or throughout the year), assuming I will not qualify for the PTC, then end up qualifying for the PTC and have to file for a refund in April (or sooner) of what I just gave the IRS. To me, that is just dumb, dumb, dumb! ..................................................

You could assume you qualify for PTC and pay estimated taxes accordingly.
When you find out in Q4 that you don't, you can file the big Q4 payment and
you should be ok if Sch AI agrees......you can calculate the payment so that
you are ok but still owe in April.

[CardsFan]

Quote:

Originally Posted by jollystomper I have started doing this (thanks to you, who gave me this idea). My different twist is that if my retirement accounts appear to be at a "peak" (my definition of a "peak" being they have grown beyond what I expected/need from them this year, not trying to time the market), I will make a withdrawal for estimated taxes. Since this is the first year I am doing this, I will see how it works out.

I have been doing this, as well, thanks to "pee before you ski" (took a Loooong time to get that one).

It is simple, easy to do, and to estimate in December.

[pb4uski]

Quote:

Originally Posted by jollystomper I have started doing this (thanks to you, who gave me this idea). My different twist is that if my retirement accounts appear to be at a "peak" (my definition of a "peak" being they have grown beyond what I expected/need from them this year, not trying to time the market), I will make a withdrawal for estimated taxes. Since this is the first year I am doing this, I will see how it works out.

(emphasis added)

What do you mean by "make a withdrawal for estimated taxes"?

One interpretation is that you make a withdrawal and then send a similar sized check to the IRS for estimated taxes.... in which case the IRS counts it as an estimated payment when received.

The other could be that you do a withdrawal and have it 100% withheld... same outcome but IRS views it as received over the course of the year since it is a withholding.

[kaneohe]

Quote:

Originally Posted by scrabbler1 ..................................... The $1,000-taxes-due safe harbor can have other quirks. My taxes due have often been either just above or just below $1,000. If it's under $1,000, then I can simply pay the whole amount in April. But suppose it is just over $1,000, say $1,020, and I don't meet any of the other safe harbor provisions. Then, in theory, I would have to pay $255 each quarter for 4 quarters. Pretty weird huh? .................................................. .......

I guess it depends on your income timing. If you normally get a jump in Q4,
the perhaps Sch AI would have you paying less in Q1-Q3 and then more in
Q4.

[scrabbler1]

Quote:

Originally Posted by kaneohe You could assume you qualify for PTC and pay estimated taxes accordingly. When you find out in Q4 that you don't, you can file the big Q4 payment and you should be ok if Sch AI agrees......you can calculate the payment so that you are ok but still owe in April.

If I qualify for PTC (now), I won't owe any estimated taxes because I am not getting the PTC on an advanced basis. I'll either owe a bunch if I go over the cliff (and pay some estimated taxes in 4Q, I just pay about half) or get a refund in April if I don't. Schedule AI will play no role.

[kaneohe]

Quote:

Originally Posted by scrabbler1 If I qualify for PTC (now), I won't owe any estimated taxes because I am not getting the PTC on an advanced basis. I'll either owe a bunch if I go over the cliff (and pay some estimated taxes in 4Q, I just pay about half) or get a refund in April if I don't. Schedule AI will play no role.

won't you potentiallly be liable for penalty if est taxes not paid evenly during yr and you don't file Sch AI? I think you said you've never been penalized but that doesn't mean you could not be in future?

[scrabbler1]

Quote:

Originally Posted by kaneohe won't you potentiallly be liable for penalty if est taxes not paid evenly during yr and you don't file Sch AI? I think you said you've never been penalized but that doesn't mean you could not be in future?

But that's my Catch-22. The worksheet to 1040-ES, when I fill it out at the start of the year, has me not needing to pay any estimated taxes at all, in any quarter. Then, I get hit with a big, unexpected cap gain distribution in December which would change the 1040-ES worksheet (which is the same as Part I of Form 2210, the test to see if any estimated taxes are due) and force an appearance of Sch AI with its estimated taxes due in at least one back quarter. That's what I would explain to the IRS in the unlikely event if they ever tried to penalize me.

[RobbieB]

Even if you under estimate badly, the penalty is not much.

[kaneohe]

Quote:

Originally Posted by scrabbler1 But that's my Catch-22. The worksheet to 1040-ES, when I fill it out at the start of the year, has me not needing to pay any estimated taxes at all, in any quarter. Then, I get hit with a big, unexpected cap gain distribution in December which would change the 1040-ES worksheet (which is the same as Part I of Form 2210, the test to see if any estimated taxes are due) and force an appearance of Sch AI with its estimated taxes due in at least one back quarter. That's what I would explain to the IRS in the unlikely event if they ever tried to penalize me.

as discussed previously, the 1040ES wksht does not give you a "hard" safe harbor if you are counting on the current yr 1K criteria. If you don't have a "hard" safe harbor, then you are completely at the mercy of IRS rules and the chemistry between you/IRS agent and if they consider you a big enuf fish. As robbie indicated, the penalty is not total onerous......is you pay it all in April w/ no estimated taxes at all it's something like 3% of the total. If the amt due is 1K, it's irritating. If it's 10K, it's a bit more than that.....to me anyway. I'd rather control my fate than leave it in IRS hands.