Need help completing Form 2210, Schedule AI: How to calculate quarterly AGI?

[nassa]

Hello-

Turbotax shows that we have an underpayment penalty and I'm attempting to complete Form 2210, Schedule AI to eliminate it.

Calculating Line 1 on this form is a bit confusing to me as it calls for "adjusted gross income for each quarter". See Line 1, top of PDF page 3 here: Link to IRS.gov form

For 2024, we had dividends and interest in all four quarters and a Roth conversion in December. There was no employment or other retirement income as we are early retired.

Our 1040 shows an adjustment for our individual HSA contribution of $10,300 and a capital loss for the year, both of which lowered our total income. We had only gains in some 2024 months but those were offset by prior year tax loss harvesting, so we had a net capital loss of -$3,000. I've been tracking all our monthly interest, dividends and Roth conversions in a spreadsheet so it's easy to see how much we earned per quarter.

Line 1 calls for "adjusted gross income for each quarter", which to me implies it is adjusted and may not be simply the quarterly sum of our interest, dividends and Roth conversions? Should I include the adjustments shown on my 1040 AGI for my HSA and capital loss? If so, how are those to be apportioned over the months/quarters?

The instructions state to include all income and deductions for the quarter and suggest most people use a "cash accounting method". I have the income part from my spreadsheet, just not sure if deductions should include things like an HSA contribution or net capital loss and how to apportion each of those across the quarters.

From now on we will be simply paying 25% of our prior year total tax due each quarter to avoid this situation.

Thank you.

 

[audreyh1]

If you know the HSA amount you paid each quarter then that can be adjusted for the relevant quarter.

How to apportion them for a given quarter, that is purely determined by the date they actually occurred.

So Gross Income for each quarter is going to be the total YTD income up to March 31, May 31, August 31 and Dec 31 for each quarter period. If you realized losses during a given quarter, those would be applied against the YTD income that includes that quarter. Capital gains or losses have to be applied when they occurred. Capital gains will be part of the income. Capital losses can be applied against gains or up to $3000 can be applied against YTD ordinary income.

Then, yes if you have adjustments to income for a given quarter that includes HSA contributions during the period. This gives your AGI.

 

[Sunset]

We pay 110% of prior year tax divided into 4 equal payments. In case we go over 150K income for the year.

 

[audreyh1]

We pay 110% of prior year tax divided into 4 equal payments. In case we go over 150K income for the year.

That 110% is only if you were over $150K MFJ the prior year. So you already know whether you were over $150K the same as you know the taxes you owed that prior year.

 

[nassa]

If you know the HSA amount you paid each quarter then that can be adjusted for the relevant quarter.

How to apportion them for a given quarter, that is purely determined by the date they actually occurred.

So Gross Income for each quarter is going to be the total YTD income up to March 31, May 31, August 31 and Dec 31 for each quarter period. If you realized losses during a given quarter, those would be applied against the YTD income that includes that quarter. Capital gains or losses have to be applied when they occurred. Capital gains will be part of the income. Capital losses can be applied against gains or up to $3000 can be applied against YTD ordinary income.

Then, yes if you have adjustments to income for a given quarter that includes HSA contributions during the period. This gives your AGI.

Thank you, audreyh1! I edited this reply to you. I think I may have figured how this works now and have no further questions at this time.

 

[audreyh1]

Good, I missed your earlier reply. Some years I do annualized income method for estimated taxes and have to file 2210 so I’m very familiar with it and filling it out in TurboTax.

 

[cathy63]

This is tricky. If you use the $3K loss against ordinary income in Q1, then you're going to end up multiplying it out to $12K which is clearly wrong. Since you can only fill out this form at the end of the year, you know how much Line 7 on your 1040 is. If it's a negative number, I think you should divide that by 4 and use 1/4 towards your AGI in each quarter. You do have to use it, because the number that you end up with for your AGI at the end of Q4 should be the same as what's on Line 11 of your 1040.

I would say you have to include all your income and credits. You can't really have a Sched AI where the fourth column doesn't bear any resemblance to your actual tax return.

Personally, I recommend not filling out Form 2210 at all. Pay what you owe and tell your software to let the IRS bill you for any underpayment penalties. The penalties stop accumulating as soon as you pay, and there's a high percentage of cases where the IRS never assesses the penalty. If you lose the lottery and they do send you a penalty letter, one of the options you have then is to respond with your own 2210 and Schedule AI to show why the penalty should be less. You can have it ready and send it in only if you need to.

 

[nassa]

This is tricky. If you use the $3K loss against ordinary income in Q1, then you're going to end up multiplying it out to $12K which is clearly wrong. Since you can only fill out this form at the end of the year, you know how much Line 7 on your 1040 is. If it's a negative number, I think you should divide that by 4 and use 1/4 towards your AGI in each quarter. You do have to use it, because the number that you end up with for your AGI at the end of Q4 should be the same as what's on Line 11 of your 1040.

I would say you have to include all your income and credits. You can't really have a Sched AI where the fourth column doesn't bear any resemblance to your actual tax return.

Personally, I recommend not filling out Form 2210 at all. Pay what you owe and tell your software to let the IRS bill you for any underpayment penalties. The penalties stop accumulating as soon as you pay, and there's a high percentage of cases where the IRS never assesses the penalty. If you lose the lottery and they do send you a penalty letter, one of the options you have then is to respond with your own 2210 and Schedule AI to show why the penalty should be less. You can have it ready and send it in only if you need to.

Thank you, cathy63! I'll think about letting the IRS bill me. I hadn't thought of that strategy! I'm going to continue to work on this. It's been helpful to read the replies on how to handle it.

 

[m3bs]

Does paying 110% of prior year tax in equal installments preclude penalties regardless of current year income? I expect to sell some stock and make IRA withdrawals, but without knowing when and how much it’s impossible to project what my taxes will be. I’d rather not mess with 2210. Last year I sold some NVDA in March, and forgot to make the additional payment, but I more than made up for it in Q2. I ended up getting a substantial refund, but I received $100 less than the amount I was expecting. I assume they will be sending me a letter to explain the discrepancy.

 

[cathy63]

Does paying 110% of prior year tax in equal installments preclude penalties regardless of current year income?

Yes.