I Missed June Estimated Tax Payment

[Badger]

I have been doing quarterly payments for about 11 years now since retirement. Since my taxes fluctuate every year due to changes in dividends, RMDs (first from my wife then me a couple of years later), starting SS on different years, or changes in the tax codes I never know what the payment will be. I try to make an estimate of the taxes for the next year but every year I have more taxes due so I haven't been very successful. But I have always paid all they want from me using standard deduction.
I usually make a payment a week before due but a few times have also missed the payment date by a few weeks to a month. So far IRS has left me alone.
Like marco I wish the IRS would just let me pay at the end of the year when I can calculate a one time accurate payment. It isn't like I'm a flight risk.

Cheers!

 

[marko]

Like marco I wish the IRS would just let me pay at the end of the year when I can calculate a one time accurate payment.

They do let you pay at the end of the year. They just charge extra for it!

 

[jebmke]

They do let you pay at the end of the year. They just charge extra for it!

Convenience fee!

My county does the same thing with RE tax. Can pay all up front or monthly (with a surcharge).

 

[Badger]

They do let you pay at the end of the year. They just charge extra for it!

 

[mystang52]

I don't like paying taxes, and I probably never will like it...so, I just don't pay any quarterly payments. We have no taxes taken from our SSA payments either.

In Nov/Dec I calculate my total income and tax liability for the current year. I then have my custodian make a withdrawal in December from our tax deferred accounts with direct payments to the Fed and State...overpaying our calculated Safe Harbor amount. Since that December payment is considered paid throughout the year, there are no quarterly payments due, and I get a refund a few months later in March.

Maybe it is just me, but why would you want to pay taxes 4 times a year?

I've been supposed to pay quarterlies since I was 17 years old. That was 54 years ago.

Never paid them, can't be bothered. Don't care about the penalty, don't even know how much it is.

I want to think about taxes one day a year. Send me the bill at tax time and I write one check.

These stated philosophies are understandable. But nowadays it's so easy to schedule payments electronically. So why not schedule those payments, thereby generally adhering to the philosophy without incurring any penalty? I'm not subject to RMD yet, but this is the approach I use for my quarterly property tax payments.

 

[gauss]

Like marco I wish the IRS would just let me pay at the end of the year when I can calculate a one time accurate payment. It isn't like I'm a flight risk.

Cheers!

Well if you like, you could pay the FIRST estimated payment of the year and just include the full safe-harbor amount (ie typically 100% of prior year's tax owed). You would not have to send in anything for the other 3 payments.

During the last 20 years when interest rates were near zero this could have been a viable alternative to paying quarterly or paying via withholding.

With higher interest rates being paid by the market currently,however, this approach may be less attractive depending on the amounts involved.

-gauss

 

[Montecfo]

Further to the point of paying once per year: pay 2x your tax due with the return and apply overpayment to next year.

Or

Pay nothing till December then do a IRA withdrawal with withholding equal to prior year tax.

Full disclosure: I do withholding and apply any overpayment to quarterlies.

 

[Sunset]

Yes that should work. I guess the only drawback is that I have the cash outside an IRA which I understand is better for paying taxes than paying them from a distribution.

That is only when doing a Roth conversion, as it puts more of the IRA money into the Roth.

But if you are taking out IRA money to spend, then I pay the tax from the IRA money at the time of removal. Because once it's out it's after tax money anyhow.
Only time I could see it being a difference if a person was close to a tax cliff, like ACA, or Medicare.

 

[Sunset]

We do the same thing only we the EFTPS website. Set it and forget it.

First year for me using it, it's FANTASTIC.

All set to automatically work, and they email me reminders, so I'm not surprised when it happens.

 

[OldShooter]

... Pay nothing till December then do a IRA withdrawal with withholding equal to prior year tax. ...

Safe harbor amount may have to be 110% of prior year tax, depending on income level. Also IIRC can be 90% of the current year tax that will be due.

 

[jollystomper]

Yes that should work. I guess the only drawback is that I have the cash outside an IRA which I understand is better for paying taxes than paying them from a distribution.

It depends. If one has large amounts in a IRA or 401K, one can look at it as helping to potentially reduce future RMDs from that account, especially if RMD time puts one into a higher tax bracket. It does depend on how much growth the account will still experience, but it becomes a first world problem .

 

[Ian S]

That is only when doing a Roth conversion, as it puts more of the IRA money into the Roth.

But if you are taking out IRA money to spend, then I pay the tax from the IRA money at the time of removal. Because once it's out it's after tax money anyhow.
Only time I could see it being a difference if a person was close to a tax cliff, like ACA, or Medicare.

I have been doing Roth conversions the last few years and plan to do it this year. I have been keeping amounts below the Medicare IRMAA limits so taking a distribution just to pay for taxes will reduce what otherwise would go into the Roth. In previous years, we did pay for taxes out of a distribution but after receiving an inheritance last year we have plenty of after-tax funds now to pay the taxes. The safe harbor annual tax amount we're talking about is ~$16k; I already paid ~$4K in April. We have yet to withdraw spending money from a tIRA. RMDs start next year.

 

[dknighd]

Lesson learned. Do better next time.

 

[tmitchell]

I don't like paying taxes, and I probably never will like it...so, I just don't pay any quarterly payments. We have no taxes taken from our SSA payments either.

In Nov/Dec I calculate my total income and tax liability for the current year. I then have my custodian make a withdrawal in December from our tax deferred accounts with direct payments to the Fed and State...overpaying our calculated Safe Harbor amount. Since that December payment is considered paid throughout the year, there are no quarterly payments due, and I get a refund a few months later in March.

Maybe it is just me, but why would you want to pay taxes 4 times a year?

What is “safe harbor”?

I expect my taxes to be pretty low this year and really don’t want to make estimated payments either!

 

[OldShooter]

See link in my post #16.

 

[tmitchell]

See link in my post #16.

Thanks OldShooter. I am not yet taking RMDs, so would that mean I'd still need to pay quarterly estimated taxes under Safe Harbor? Or could I just pre-pay 90% of the estimated amount on my dividends/interest in December?

Alternatively, I plan to do a Roth conversion...would that be a potential place to do the withholding?

Sorry this is my first year doing all this and I'm still trying to sort it all out! Thank you.

 

[OldShooter]

@tmitchell, this is one of those cases where information from SGOTI could get you into trouble. Specifically, I an not an expert but I will try to deal with your questions to the extent I can.

First, this safe harbor stuff is strictly about eliminating the risk of income tax underpayment penalties. The source of the income (I.e., RMDs, dividends, etc.) is irrelevant.

The December thing is a bit of a trick that takes advantage of the fact that withheld taxes are assumed to have been paid evenly during the year, hence 100% of your necessary payment can be delayed up to Dec. 31. If you paid the entire safe harbor amount in January, then you could just be writing them a check. There would be no advantage to paying via withholding. Same-o if you pay them in the four installments that they expect.

The reason that RMDs get mentioned, I think, is that some people do the withholding trick from IRAs in December and part or all of that income also satisfies their RMD requirement(s).

I am not hampered by any expertise here, but it seems to me that if you withdraw money to do a Roth conversion in December, that would be no different than any other withdrawal from which you might withhold the taxes. Neither my custodian nor the IRS has ever asked us about the purpose of any IRA withdrawal. Probably the same for you

You have enough moving parts here and enough uncertainty that I'd suggest finding a savvy CPA to help you through at least the first year's exercise. This SGOTI probably isn't enough for you.

 

[tmitchell]

@tmitchell, this is one of those cases where information from SGOTI could get you into trouble. Specifically, I an not an expert but I will try to deal with your questions to the extent I can.

First, this safe harbor stuff is strictly about eliminating the risk of income tax underpayment penalties. The source of the income (I.e., RMDs, dividends, etc.) is irrelevant.

The December thing is a bit of a trick that takes advantage of the fact that withheld taxes are assumed to have been paid evenly during the year, hence 100% of your necessary payment can be delayed up to Dec. 31. If you paid the entire safe harbor amount in January, then you could just be writing them a check. There would be no advantage to paying via withholding. Same-o if you pay them in the four installments that they expect.

The reason that RMDs get mentioned, I think, is that some people do the withholding trick from IRAs in December and part or all of that income also satisfies their RMD requirement(s).

I am not hampered by any expertise here, but it seems to me that if you withdraw money to do a Roth conversion in December, that would be no different than any other withdrawal from which you might withhold the taxes. Neither my custodian nor the IRS has ever asked us about the purpose of any IRA withdrawal. Probably the same for you

You have enough moving parts here and enough uncertainty that I'd suggest finding a savvy CPA to help you through at least the first year's exercise. This SGOTI probably isn't enough for you.

Copy that thank you

 

[Ian S]

O.P. Here

I've paid June's estimated tax late and will continue with estimated taxes for this year. Whatever the penalty turns out to be I will make use of the "First Time Abate Waiver." I've already set up calendar reminders for the rest of the estimated tax dates this year. Thanks for all the input!

 

[F.I.R.E User]

I thought quarterly taxes are voluntary? Is this for 1099?

 

[rk911]

I thought quarterly taxes are voluntary? Is this for 1099?

in a sense, yes. quarterly tax payments are for anyone but primarily for people who do not have W2 wages such as periodic income from 1099 employment, SS, retirement plans, IRA RMDs, voluntary withdrawls from brokerage accounts, etc. and elects to NOT have state or federal income taxes witheld from that income. my wife and I have elected to not have federal or state taxes withheld from ANY of our periodic income so we set up automatic quarterly state and federal tax payments from a bank account.

 

[harley]

I thought quarterly taxes are voluntary? Is this for 1099?

They're just as voluntary as any other tax payment.