2023 Estimated Taxes

[foxfirev5]

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

Oh yeah. We get two property taxes in December (MI) due February 14th. Instinctively I pay both in January with the remote chance I'll get to deduct them in the new year.

 

[Time2]

How about this, I didn't take out money from and IRA until Dec 23rd. About $190k. I had about $15k of quarterly dividends and interest over the year, I did pay more than enough quarterly tax to cover the dividends and interest, but no where near enough to cover the $190k.

Does the IRS expect me to pay quarterly tax on this money before I knew I was going to withdraw it?

 

[marko]

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.

Thanks.
It's very simple: I pay my taxes on April 14th. I don't send them any more money except from my IRA witholdings until the next April 14th.

 

[JoeWras]

How about this, I didn't take out money from and IRA until Dec 23rd. About $190k. I had about $15k of quarterly dividends and interest over the year, I did pay more than enough quarterly tax to cover the dividends and interest, but no where near enough to cover the $190k.

Does the IRS expect me to pay quarterly tax on this money before I knew I was going to withdraw it?

This comes down to safe harbor rules. Did the quarterly taxes you pay add up to 110% of last year's taxes you paid? If so, you are done, you are safe.

If, however, you paid an estimated tax load that is smaller than last year's tax paid, you might want to take action now.

You can pay estimated tax in the quarter you incur the income. In your case, you can pay the estimate until January 17 since you got the income in December. You will have to fill out an extra form. This is form 2210, section "AI" where you explain the unevenness to avoid the penalty.

 

[foxfirev5]

Thanks.
It's very simple: I pay my taxes on April 14th. I don't send them any more money except from my IRA witholdings until the next April 14th.

Makes sense. You probably don't have a big penalty since you have IRA witholdings to cover a portion of it.

 

[Time2]

This comes down to safe harbor rules. Did the quarterly taxes you pay add up to 110% of last year's taxes you paid? If so, you are done, you are safe.

If, however, you paid an estimated tax load that is smaller than last year's tax paid, you might want to take action now.

You can pay estimated tax in the quarter you incur the income. In your case, you can pay the estimate until January 17 since you got the income in December. You will have to fill out an extra form. This is form 2210, section "AI" where you explain the unevenness to avoid the penalty.

Sounds good, I checked Turbotax Deluxe it has Form 2210.

 

[FlaMariner]

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.

Amen! That's what we do.

After reading lots of posts on here, I thought I was the only ER taxpayer who did not make quarterly payments.

The fine seems low and certainly makes things easier to just pay up once a year and forget about it.

Let's say I owe $5,000. The penalty is like 5%, right? So that is a $250 penalty? And I made a few dollars of that in my Dominion Energy 4.25% savings account in the meantime.

Please educate me on why I should fumble around with quarterly payments to Caesar?

 

[JoeWras]

Let's say I owe $5,000. The penalty is like 5%, right? So that is a $250 penalty? And I made a few dollars of that in my Dominion Energy 4.25% savings account in the meantime.

Please educate me on why I should fumble around with quarterly payments to Caesar?

Well, considering some people freak out over the following:
- buying an iBond at the beginning of the month instead of end ($30 lost?)
- Not getting blessed by Fidelity for a free Turbotax ($30 again)

... some would consider $250 significant.

 

[RunningBum]

Please educate me on why I should fumble around with quarterly payments to Caesar?

I'd venture that most of us don't view using EFTPS as "fumbling around" or a hassle but do whatever you want to do.

 

[MarieIG]

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

The authorities from my neck of the woods send out bills twice a year (general tax and school tax) - each allowing 1/2 payments (which would mean four payments a year).

I "know" the penalty dates for the first payment of each.

Why? Isn't that slacking MarieIG, shouldn't you know the due dates? Well that would make sense, and I like to be timely but our property tax bills are not sent out until after they are due. Ever. Yes, they are sent out late each and every year, twice a year. This was the bill for general tax. I pay each property tax bill in full before the penalty date - it's just too much for me to keep those additional dates in mind.

 

[Time2]

Amen! That's what we do.

After reading lots of posts on here, I thought I was the only ER taxpayer who did not make quarterly payments.

The fine seems low and certainly makes things easier to just pay up once a year and forget about it.

Let's say I owe $5,000. The penalty is like 5%, right? So that is a $250 penalty? And I made a few dollars of that in my Dominion Energy 4.25% savings account in the meantime.

Please educate me on why I should fumble around with quarterly payments to Caesar?

Some of us consider an unneeded spend of $250 a rather large waste, when it is easy to eliminate. I might add, I owe about $20,000 in tax, does $1,000 waste have any effect on you?

 

[marko]

Makes sense. You probably don't have a big penalty since you have IRA witholdings to cover a portion of it.

Some of us consider an unneeded spend of $250 a rather large waste, when it is easy to eliminate. I might add, I owe about $20,000 in tax, does $1,000 waste have any effect on you?

Here's the thing: For me, there's something visceral about having to write a $6,550 check every 13 weeks. I just can't do it. I feel like I'm paying with nothing to show for it.

I know it makes no sense, but I can afford the $1500 penalty. I'll pay the penalty and hang on to my money until the very end.

I've spent more money on stupider things over my lifetime. IMO, one of the benefits of having money is the ability to keep life simple, regardless of the 'waste' aspect. Some people drive a mile out of their way to save 10 cents on gas. I don't.

And....look at the money I save on stamps!!

 

[audreyh1]

Stamps, for goodness sake you don’t have to use stamps!

 

[marko]

Stamps, for goodness sake you don’t have to use stamps!

I don't? Maybe I should reconsider.

 

[Jerry1]

I guess if that’s how you want to spend your money, who am I to judge. In my mind, there’s no need to pay any penalty and accomplishing that is rather easy given the safe harbor rules. In terms of whether or not $1K or $250 is a large amount of money, I look at it in terms of the effort required to avoid it. In this case the effort is small so I’d say even $100 is a lot of money to just give away. Better to give it someone in need or a family member. But, to each his/her own.

 

[Jerry1]

Stamps, for goodness sake you don’t have to use stamps!

I just sent in a 4th Qtr. estimate. Two checks and two stamps. Took about 5 minutes once I had the amounts figured out.

I’d do it online, but they charged a fee for using a credit card and I’m against fees. If there’s a way to transfer money electronically, I wouldn’t mind understanding that. Though I suspect I’d have to set up an account and give them my bank information. That’s a pain, but I may consider it in the future if that is an option.

 

[audreyh1]

DF used to pay all his estimated taxes one time annually on April 15 right after he paid his prior year taxes. So that he didn’t have to worry about them for the rest of the year.

DF wasn’t willing to deal with RMDs either. He simply liquidated his IRA before reaching RMD age. Paid the taxes and invested it in a taxable brokerage account. He already had a generous pension plus SS, good benefits and he didn’t need the funds. They eventually passed to his heirs with a stepped up basis.

 

[audreyh1]

I just sent in a 4th Qtr. estimate. Two checks and two stamps. Took about 5 minutes once I had the amounts figured out.

I’d do it online, but they charged a fee for using a credit card and I’m against fees. If there’s a way to transfer money electronically, I wouldn’t mind understanding that. Though I suspect I’d have to set up an account and give them my bank information. That’s a pain, but I may consider it in the future if that is an option.

We use the EFTPS (Electronic Federal Tax Payment System) which is extremely convenient. It is linked to a bank account - checking or savings. The great thing is you can schedule payments ahead of time. For estimated tax payments I simply schedule all 4 (or 3) of them ahead. You can go back later and change or cancel an upcoming payment. They send you email reminders when you are getting close to a scheduled payment. It works extremely well and I’ve used it since 2003. Businesses use this system too.

No fees to use EFTPS either.

Right - important point!

 

[Jerry1]

We use the EFTPS (Electronic Federal Tax Payment System) which is extremely convenient. It is linked to a bank account - checking or savings. The great thing is you can schedule payments ahead of time. For estimated tax payments I simply schedule all 4 (or 3) of them ahead. You can go back later and change or cancel an upcoming payment. They send you email reminders when you are getting close to a scheduled payment. It works extremely well and I’ve used it since 2003. Businesses use this system too.

Thanks, I’ll look into it. However, I’m leaning toward having all my withholdings zero’d out (from my pension and SS) and then just making one withdrawal at year end from my IRA, for my hold harmless amount at 100% withholding. That will eliminate any penalty and take advantage of any cash flow issues.

 

[RunningBum]

No fees to use EFTPS either.

 

[audreyh1]

Thanks, I’ll look into it. However, I’m leaning toward having all my withholdings zero’d out (from my pension and SS) and then just making one withdrawal at year end from my IRA, for my hold harmless amount at 100% withholding. That will eliminate any penalty and take advantage of any cash flow issues.

That may end up being the most convenient for you. I have no opportunities for federal tax withholding.

That last IRA withdrawal to cover estimated taxes does increase your taxable income by the same amount however. Something to consider.

 

[MarieIG]

I just sent in a 4th Qtr. estimate. Two checks and two stamps. Took about 5 minutes once I had the amounts figured out.

I’d do it online, but they charged a fee for using a credit card and I’m against fees. If there’s a way to transfer money electronically, I wouldn’t mind understanding that. Though I suspect I’d have to set up an account and give them my bank information. That’s a pain, but I may consider it in the future if that is an option.

Actually, I put two stamps on each envelope - just in case. Drives DH crazy. Then I take them to the post office mail-box.

I would not pay a fee to pay taxes; and I don't want yet another electronic account so that I can have yet another password to forget.

 

[d.davis]

I learned here I can initiate a tIRA withdrawal in December with 100% federal taxes withheld to cover my taxes for the year to avoiding any penalty. I have a 4qtr est tax payment for 2022 scheduled via eftps then I'm cancelling the rest. What a wonderful way to manage tax payments without loaning the government money:
1st ROTH conversion in January, final ROTH conversion in dec reduced by taxable income and tIRA withdrawal with 100% withheld for federal taxes for the year.
Another life simplification in retirement, thanks!

 

[audreyh1]

When I retired and started doing estimated taxes I was always so worried about my payment getting lost in the mail. For a while I did signature confirmation type postage which was a pain. So I was quite relieved to discover EFTPS.

 

[Pointby2]

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.

I'm with you marko!