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TL/DR - Why was I charged a penalty for failing to pay estimated taxes? I paid more than the total amount of the tax.
Is this the right forum for questions regarding taxes? If not, please steer me to the right place.
I'm pretty new at making quarterly tax payments. (Retired mid-2016.) For 2017, I just made quarterly estimated tax payments of one quarter of our 2016 tax.
For 2018, I estimated the tax based on an estimate of what our income including IRA withdrawals would be. For the first two quarters, I paid that estimate ($6200 each quarter). When the third quarter came around, I hadn't yet taken an IRA withdrawal, so I figured I could skip the quarterly payment.
In November, the Schwab guy suggested I should be making IRA withdrawals to minimize the amount of my required minimum distributions which will start in 6 more years. In November, I withdrew an amount that was greater than the sum of all all our other income for the year.
Having made that withdrawal, and because I needed a bunch of Southwest Airline points, in early January I made a quarterly payment by credit card that was enough so that I ended up getting a large refund.
Last week I got a letter from the IRS saying that I had been charged a penalty of $105.75 for failing to pay estimated taxes. Curious about why that would be, I went back to my tax prep software to perform a simulation. What I found is that if I had not taken the large IRA distribution, my income tax would have been zero, and the estimated tax I had already paid would have been more than sufficient.
I also looked more closely at the 1099R forms, and I found that they don't have a date for the distribution, so the IRS had no way to know that I took that income very late in the year.
I don't think it would be a good use of my time to fight with the IRS over $105.75, but I would like to know if there is anything I could have done to show the timing of the income and the resulting impact on the estimated tax calculations.
Can anyone advise me?
Is this the right forum for questions regarding taxes? If not, please steer me to the right place.
I'm pretty new at making quarterly tax payments. (Retired mid-2016.) For 2017, I just made quarterly estimated tax payments of one quarter of our 2016 tax.
For 2018, I estimated the tax based on an estimate of what our income including IRA withdrawals would be. For the first two quarters, I paid that estimate ($6200 each quarter). When the third quarter came around, I hadn't yet taken an IRA withdrawal, so I figured I could skip the quarterly payment.
In November, the Schwab guy suggested I should be making IRA withdrawals to minimize the amount of my required minimum distributions which will start in 6 more years. In November, I withdrew an amount that was greater than the sum of all all our other income for the year.
Having made that withdrawal, and because I needed a bunch of Southwest Airline points, in early January I made a quarterly payment by credit card that was enough so that I ended up getting a large refund.
Last week I got a letter from the IRS saying that I had been charged a penalty of $105.75 for failing to pay estimated taxes. Curious about why that would be, I went back to my tax prep software to perform a simulation. What I found is that if I had not taken the large IRA distribution, my income tax would have been zero, and the estimated tax I had already paid would have been more than sufficient.
I also looked more closely at the 1099R forms, and I found that they don't have a date for the distribution, so the IRS had no way to know that I took that income very late in the year.
I don't think it would be a good use of my time to fight with the IRS over $105.75, but I would like to know if there is anything I could have done to show the timing of the income and the resulting impact on the estimated tax calculations.
Can anyone advise me?