Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Question regarding estimated tax payments
Old 01-01-2013, 07:03 PM   #1
gone traveling
Join Date: Apr 2011
Posts: 35
Question regarding estimated tax payments

I have usually received a refund, both state and federal. In 2011 I was unemployed for awhile and no taxes were taken out. In addition, I converted some money to a Roth in 2010 which I chose to pay out over the 2011 and 2012 tax years. When I filed my 2011 return, I ended up owing the state money and then about a month later I received a bill for a tax penalty in the amount of $18.00. This has never happened to me.
For 2012, I was unemployed for a short time and will have the remaining portion of the Roth conversion due.

I just received from the state forms for estimated tax payments and vouchers for the 2013 tax year. I never had to deal with estimated tax payments before and my question is how do I know if I will end up owing any money for 2013. I am now working, although making less then in the past and will not have any roth conversions to increase my income.
If I owe anything for 2012, it will be promptly paid.

I would appreciate any advice.

joecaf53 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-01-2013, 08:19 PM   #2
Full time employment: Posting here.
ShortInSeattle's Avatar
Join Date: Jan 2012
Posts: 517
Basically, when you owe the IRS tax, the following year they assume you will again. They send you coupons to break your estimated tax due into four quarterly payments. My fuzzy understanding is that the first payment is always mandatory, but if you find that you won't owe estimated tax after all because your income is lower (or all tax is being withheld by an employer) you can notify the IRS to opt out of the other payments. Definitely check though, you don't want to accrue penalties.

This is a CPA question, but that is the gist of what my CPA told me. You might want to seek an expert opinion.

ShortInSeattle is offline   Reply With Quote
Old 01-01-2013, 08:36 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,728
Usually the first 2013 estimated payment isn't due until 4/15/13 or thereabouts so don't sweat it for now. From what you have indicated you probably won't need it as it sounds like for 2013 the majority of your income will be wages for which taxes will be taken out and no Roth conversions but you should re-evaluate it when you finish your 2012 return.

The idea behind estimated payments is if you have taxable income for which there are no withholdings then you need to make quarterly advance payments for estimated taxes on the income you had and it is all trued up when you file your tax return.
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 01-01-2013, 08:42 PM   #4
Thinks s/he gets paid by the post
Join Date: Oct 2008
Location: Naples
Posts: 2,179
Because of investments I had to pay about $600 last year, but there was no penalty involved because the year before I got a refund. Don't ask me to explain the legalities. Looks like I will owe the IRS some money for 2012 so I'm getting ready to send in about $700. I will revert to my last few estimated tax payments, and that is to send it in on voucher #4 which is due 1-15-2013. If in fact I don't owe this amount, I'll get it back in short order.
JOHNNIE36 is offline   Reply With Quote
Old 01-01-2013, 09:24 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Nov 2009
Posts: 5,961
There are various "safe harbor" provisions regarding estimated and withholding taxes which are based on one's income, tax liability, and prior year's tax liability. I have been making estimated tax payments going back to the 1990s when my investment income began picking up and I needed to make some 4th quarter payments to stay out of the penalty zones.

Since 2009, I have been making some of my estimated tax payments before the 4th quarter in order to stay out of penalty zones. There still seems to be some grey areas about the penalty zones but I have been able to stay out of them, both federally and for my state.

One thing I have been doing with regard to my 4th quarter estimated state income tax payments is taking advantage of the calendar year flexibility to place them in actual tax year or the tax year+1 (by paying them now, in January), whichever helps me more on my federal taxes.
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 01-01-2013, 09:33 PM   #6
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,299
The legalities are approximately this:

Generally you must withhold an amount equal to 90% of your taxes due for the year. Less than that and you may incur a penalty and interest payments.

Paying estimated taxes in four equal quarterly installments counts the same as withholding.

If you have unanticipated income, you can pay estimated taxes for it in the quarter in which it occurred. But, you will then have to document income and taxes and tax payments by quarter when you file your taxes. That's not fun if you have a complex situation. The 90% rule applies separately for each quarter.

Last, there is a "safe harbor" rule that says if you withhold an amount that is equal to 100% of what you owed last year (the entire tax bill, not just what you added on April 15th), then you don't have to worry about the 90% rule. The "safe harbor" is 110% if you exceed an income threshold of $100k or so. That's you safest bet, though not good if your taxes are taking a big drop.

Check my numbers, but that should give you a good idea of what you need to do.
Animorph is offline   Reply With Quote
Old 01-01-2013, 09:43 PM   #7
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,299
I made an unexpected Roth conversion at the end of this year. My estimated tax payments (federal and state) are going out 1/10/2013. Then I'll have to figure my tax for each quarter since I don't meet the safe harbor requirement this year. Whoopie!
Animorph is offline   Reply With Quote
Old 01-02-2013, 12:43 PM   #8
gone traveling
Join Date: Apr 2011
Posts: 35
Thank you everyone for your assistance, it is greatly appreciated.
joecaf53 is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

» Quick Links

All times are GMT -6. The time now is 06:02 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.