Do you withhold taxes on dividends?

[OldShooter]

No. In late December I estimate what my total tax for the year will be and I then do a tIRA withdrawal with high withholdings for federal and state income taxes to make estimated tax payments.... but because these taxes are paid in the form of withholdings the IRS considers it as having been done ratably throughout the year for the purpose of underpayment penalties even though it happens in December.

I do basically this, but @pb4 is an accountant. I am not an accountant and I am lazy, so we just withhold the safe harbor amount (110% of last year's taxes IIRC).

 

[VanWinkle]

No. In late December I estimate what my total tax for the year will be and I then do a tIRA withdrawal with high withholdings for federal and state income taxes to make estimated tax payments.... but because these taxes are paid in the form of withholdings the IRS considers it as having been done ratably throughout the year for the purpose of underpayment penalties even though it happens in December.

Are you pulling RMDs, or just pulling to pay taxes on the rest of your income?
Just curious if that is the most efficient was to pay taxes as it removes money from tax sheltered status.

 

[Sojourner]

We don't have any source of income that could be withheld from, so I just divide last year's tax bill by 4 and pay it as estimated taxes.

+1

 

[Kelor]

Thanks for the advice!

 

[rk911]

I am still employed and just have my employer hold out a bit more taxes. It usually works. But I ended up with a much larger paycheck for december b/c of overtime. So I'm estimating I owe 3-4 thousand extra in taxes. Can I make a single extra "quarterly" tax payment by january deadline to avoid some of the penalty?

I'm not sure how the ES form would work since most of taxes are paid throughout year?

sure...the gummit will be happy to take your tax dollars at any time. we do our quartery payments online at https://www.eftps.gov/eftps/

 

[HFWR]

I have taxes withheld from SS and IRA. Just don’t want to deal with the IRS more than once a year...

 

[audreyh1]

I am still employed and just have my employer hold out a bit more taxes. It usually works. But I ended up with a much larger paycheck for december b/c of overtime. So I'm estimating I owe 3-4 thousand extra in taxes. Can I make a single extra "quarterly" tax payment by january deadline to avoid some of the penalty?

I'm not sure how the ES form would work since most of taxes are paid throughout year?

Yes, you can do this. As long as you’ve paid 90% of current year’s taxes by Jan 15. The rest is not owed until April 15. You might have to file form 2210 with your 1040 to show the larger income in Dec, but don’t bother unless a penalty is shown.

Safe harbor based on prior year's taxes may be an alternative. Worth checking.

We paid estimated taxes while I was still working to deal with investment income.

 

[Cobra9777]

We have no withholding of any kind. We have two pensions but both elected zero withholding. The rest of our income is rental, dividends, capital gains, and a large Roth conversion in December. I do quarterly estimated payments for everything via EFTPS, paying as little as possible while carefully avoid penalties for underwithholding. I'll look into pb4's method after we have penalty-free access to our tIRAs.

 

[Katsmeow]

Are you pulling RMDs, or just pulling to pay taxes on the rest of your income?
Just curious if that is the most efficient was to pay taxes as it removes money from tax sheltered status.

I am not him, but I do the same thing. Our income is almost entirely two things: (1) Social Security and (2) IRA withdrawals. For someone without a lot of after tax money doing it this way makes sense.

 

[pb4uski]

I like pb4ski's method, and will remember that. Right now, I'm not taking RMD's so I make quarterly payments.

Not only that, but the withdrawal with withholding in lieu of paying estimated taxes can count as part of your RMD when you do have RMDs.

 

[pb4uski]

Are you pulling RMDs, or just pulling to pay taxes on the rest of your income?
Just curious if that is the most efficient was to pay taxes as it removes money from tax sheltered status.

I'm not old enough to have RMDs... so it is just a regular withdrawal.

I want to remove money from tax-deferred now while I'm in a low tax bracket. Absent tIRA withdrawals or Roth conversions I would pay no tax as the standard deduction exceeds my pension... so any tIRA withdrawals or Roth conversions are taxed at 0%, 10%, and 12%. Once we start SS we'll be in the 22% bracket so by taking money out now I'm saving 10% or more.