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Quarterly Tax Estimates for newly retired ?
Old 01-17-2021, 05:54 PM   #1
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Quarterly Tax Estimates for newly retired ?

Recently retired. DW still working. Our income will drop by about 50% in 2021 vs 2020. How do we estimate taxes ? Based on 2021 projections or some formula applied to 2020 ? Thanks for your help !
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Old 01-17-2021, 06:06 PM   #2
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If your wife is still working, it may be easiest to just use the IRS' W-4 app and have her update her withholding to cover her earnings and any other income you might have. https://www.irs.gov/individuals/tax-...ding-estimator

If you prefer to estimate taxes and setup estimated payments, then taxcaster does a good job: https://turbotax.intuit.com/tax-tool...ors/taxcaster/
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Old 01-17-2021, 06:37 PM   #3
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If you use tax return software mockup your tax return. I have learned that I can pay income tax online from my checking account, skipping the quartly form and postage.
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Old 01-27-2021, 02:03 PM   #4
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I went to IRS website and tried to use estimator. It still confuses me.
Is it as simple as paying at least 90% of estimated tax liability for the
upcoming year ?
Why would anyone pay 110% of previous year ? Sorry if this is obvious. It's not to me. Thanks
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Old 01-27-2021, 02:13 PM   #5
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Quote:
Originally Posted by Katoslake View Post
I went to IRS website and tried to use estimator. It still confuses me.
Is it as simple as paying at least 90% of estimated tax liability for the
upcoming year ?
Why would anyone pay 110% of previous year ? Sorry if this is obvious. It's not to me. Thanks
If your AGI is over $150K then it's 110% instead of 90%.
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Old 01-27-2021, 03:11 PM   #6
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Quote:
Originally Posted by Katoslake View Post
I went to IRS website and tried to use estimator. It still confuses me.
Is it as simple as paying at least 90% of estimated tax liability for the
upcoming year ?
Yes. If you know what your 2021 income will be, then use the taxcaster link I gave previously to estimate your tax liability. The tool is using the 2020 tables, but that's close enough for estimates. Take the tax liability number and subtract your wife's expected withholding for 2021. Divide the remainder by 4 and those are your estimated payments. This formula aims for 100% instead of 90% to allow for being somewhat off on the income or withholding estimates.

Quote:
Originally Posted by Katoslake View Post
Why would anyone pay 110% of previous year ? Sorry if this is obvious. It's not to me. Thanks
The IRS has several different safe harbors. 90% of the current year is one. 100% or 110% of the prior year is another. You would want to use the 110% of prior year safe harbor if last year's income was over $150K and your income this year will be higher. Since you said your income is going down by 50% because you retired, you will end up with a big refund if you choose this one. Go for the 90% if you can.
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Old 01-27-2021, 03:54 PM   #7
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Originally Posted by braumeister View Post
If your AGI is over $150K then it's 110% instead of 90%.
Thanks. I saw a post on another thread that said 110% of previous year which scared me !
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