2023 Estimated Taxes

[jpjr]

I know the estimated tax schedule is April, June, September and January, but I am not certain if I can actually do the estimates on an equal 1/4ly basis or if I have to recognize the large tax due early in the year due to my RMD and wife's Roth Conversion being processed this month. We have kept the total tax rate in the 12% range. Example: total estimated taxes for 2023 with RMD, Roth, and other income is $13,000. However the RMD and Roth account for $7,000. I'm inclined to do $3,250 each 1/4.


Thanks for your input.


jpjr

 

[walkinwood]

If you own a tax program for 2022, create a file with your 2023 income stream and see if your plan will lead to a penalty.

 

[jpjr]

If you own a tax program for 2022, create a file with your 2023 income stream and see if your plan will lead to a penalty.

Yup - Just did a calculation with the weighted income in first 1/4 - must pay more now and less for the last three 1/4ly estimates. Not talking big bucks, but better to do it up-front rather than mess with our friends at the IRS.

 

[bizlady]

We have taken our withdrawl every year in January, and pay 4 equal tax payments, never a problems and never a penalty

 

[RunningBum]

Yup - Just did a calculation with the weighted income in first 1/4 - must pay more now and less for the last three 1/4ly estimates. Not talking big bucks, but better to do it up-front rather than mess with our friends at the IRS.

That has not been my experience.

I assume you did these calculations in form 2210? I have found that as long as I make safe harbor or have covered my tax in full with even quarterly payments, I do not have to fill out form 2210. Thus the early weighting of my income for the year is not disclosed on my tax return.

In your test run of your return were you actually directed to use 2210, or did you choose to do it without prompting?

No harm in paying more upfront, certainly. And if you won't reach safe harbor making estimated payments based on last year's tax, it probably is safer just in case you wind up taking more income later in the year.

 

[audreyh1]

If I expect to pay more than prior year taxes I just do the prior year taxes /4* every quarter deadline. It doesn’t matter how early or lumpy your income is in that case, or how much higher your income might be in the new year. Safe harbor covers you.

* for us it’s (prior year taxes x 1.1)/4

If you think that will force you to way overpay estimated taxes then you might have to use the annualized income method instead.

 

[wolf]

If I expect to pay more than prior year taxes I just do the prior year taxes /4* every quarter deadline. It doesn’t matter how early or lumpy your income is in that case, or how much higher your income might be in the new year. Safe harbor covers you.

* for us it’s (prior year taxes x 1.1)/4

If you think that will force you to way overpay estimated taxes then you might have to use the annualized income method instead.

I do something similar. Just pay previous year's tax due. No need to do any future tax calculation.

Use to pay, 1/4 tax payments. But followed a "suggestion", I think on this forum. When doing RMD, I "with hold" a portion to cover my taxes.
No need to remember to mail in 1/4 est. tax payments.

If I need to pay more taxes at year end. No big deal. Just make additional
tax payment when doing tax return. No penalty.

 

[ncbill]

I always pay estimated tax owed immediately electronically whenever I do the Roth conversion.

 

[volfan]

I always pay estimated tax owed immediately electronically whenever I do the Roth conversion.

NCBill, Do you do this through the company you are doing the conversion or do you file a form with the IRS and pay at the time of conversion?

 

[audreyh1]

A lot of us use the EFTPS Electronic Federal Tax Payment System - super easy to schedule payments.

 

[jpjr]

Yes we use the online fed system too.


Given that we aren't going to be earning big bucks in returns if we stretch out our 1/4ly payments on an equal basis, we chose to do what ncbill has done and attack the taxes on the conversion and RMD upfront. Thanks for everyone's info.



Now on to bigger things, will it be burgers or steaks tonight?

 

[ncbill]

NCBill, Do you do this through the company you are doing the conversion or do you file a form with the IRS and pay at the time of conversion?

I use DirectPay not EFTPS.

Never a problem for my once a year Roth conversion.

 

[Sunset]

We've used DirectPay and EFTPS.

We pay (1.1 * last year tax) / 4 so that we are in safe harbor and don't get a penalty.

 

[foxfirev5]

Each December I calculate my taxes and have the minimum witholding taken from a final tIRA withdrawal. This also may mean an additional Roth conversion to fill up the 12% bracket. Two transactions per year one in January and one in December. Simple

 

[audreyh1]

I always pay estimated tax owed immediately electronically whenever I do the Roth conversion.

NCBill, Do you do this through the company you are doing the conversion or do you file a form with the IRS and pay at the time of conversion?

Another thing - since ncbill is doing a Roth conversion (as opposed to an RMD) it’s usually preferable to pay the taxes from other funds so that the entire amount is converted to Roth. He’s probably doing that.

 

[marko]

Despite my accountant's hair pulling, I don’t pay quarterlies. Couldn’t be bothered. I pay the fine, write one check. "Leave me alone! See you in April".

(and get off my lawn)

80% of my income is from my IRA and I pay the taxes at time of withdrawal anyway. So the penalty on what is left is worth avoiding the hassle of having to worry about it.

 

[VanWinkle]

A lot of us use the EFTPS Electronic Federal Tax Payment System - super easy to schedule payments.

+1

 

[ncbill]

Another thing - since ncbill is doing a Roth conversion (as opposed to an RMD) it’s usually preferable to pay the taxes from other funds so that the entire amount is converted to Roth. He’s probably doing that.

Yep, taxes paid from taxable accounts.

 

[wolf]

Despite my accountant's hair pulling, I don’t pay quarterlies. Couldn’t be bothered. I pay the fine, write one check. "Leave me alone! See you in April".

(and get off my lawn)

80% of my income is from my IRA and I pay the taxes at time of withdrawal anyway. So the penalty on what is left is worth avoiding the hassle of having to worry about it.

Since you use an accountant. Why not just write 2 checks. One for current taxes due. And another check for estimated taxes. (pay current tax due).

Then no penalty for the next tax year. So simple.

I understand why your accountant is pulling hair.

 

[foxcreek9]

If you are pulling money from your IRA any way, there is this "trick" to avoid quarterly payments.

https://financialducksinarow.com/1663/ira-trick-eliminate-estimated-tax-payments/

 

[OldShooter]

If you are pulling money from your IRA any way, there is this "trick" to avoid quarterly payments.

https://financialducksinarow.com/1663/ira-trick-eliminate-estimated-tax-payments/

Yes. We've been doing that. Learned the trick here. A second trick is to pay the safe harbor amount as the December IRA distribution withholding. 100% or 110% of prior year tax liability. Then you never have to do any calculation of estimated taxes or worry about quarterly payments. This works for our state too but I don't know if it works for all states.

 

[marko]

Since you use an accountant. Why not just write 2 checks. One for current taxes due. And another check for estimated taxes. (pay current tax due).

Then no penalty for the next tax year. So simple.

I understand why your accountant is pulling hair.

I do write two checks! One to the Feds, one to the accountant.

If you are pulling money from your IRA any way, there is this "trick" to avoid quarterly payments.

https://financialducksinarow.com/1663/ira-trick-eliminate-estimated-tax-payments/

I tried that once. All it did was put me into another bracket and hit me with IRMAA as well.

Thanks, but I just want to think about taxes one day a year. My accountant can worry about them the other 364. I'll pay the penalty.

 

[foxfirev5]

I do write two checks! One to the Feds, one to the accountant.




I tried that once. All it did was put me into another bracket and hit me with IRMAA as well.

Thanks, but I just want to think about taxes one day a year. My accountant can worry about them the other 364. I'll pay the penalty.

If you can manage a tax bracket, additional witholding should not be an issue. Perhaps another accountant is in order. I would wonder what else they may be missing. Either way I don't have a dog in this hunt. The more someone else pays the better off I am. I wish.

 

[MarieIG]

I was going to write out my checks today (state and federal) but had a migraine most of the morning. I didn't think it would help so I'll work on it over the weekend.

A property tax bill showed up in the mail. It went up. That can wait till next week.

 

[JoeWras]

I was going to write out my checks today (state and federal) but had a migraine most of the morning. I didn't think it would help so I'll work on it over the weekend.



A property tax bill showed up in the mail. It went up. That can wait till next week.

Surprised on the property tax this time of year. Many authorities send bills in summer to avoid coinciding with the IRS tax time.