Federal Estimated payments

Most of my taxable income comes in December when I take the obligatory IRA distribution for those over 71. So most of my tax is incurred in December of each year.

Question: do I need to make my estimated tax payments in the usual 4 equal payments or can I make it all in the 4th payment without this incurring a penalty for doing so?

Thanks, Jeff

Reply to
Jeff
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Years ago I did this, unequal payments. It is/was allowed but you needed to include the Income worksheet that showed you were providing the tax due on the amount earned for the each of the four income periods with the annual income tax filing. This link gives all the information:

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Then there are special rules for farmers and fishermen; I think they are excused from making four payments.

Reply to
Don Schmidt

Thank you very much. Very helpful.

Reply to
Jeff

Hi, Jeff.

For estimated tax payments, there are many rules and they are quite complex, as seen in the link that Don provided. But there are MANY exceptions to the rules, as shown in IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts

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The exceptions are about as complicated as the rules themselves. But the exceptions provide so many loopholes to the penalty that my practice - and my advice to clients during my years of active practice as a CPA - was to pay more attention to the exceptions than to the rules themselves.

  1. There are rules for what we must do.
  2. There are penalties for failing to do what we must.
  3. There are exceptions that might eliminate the penalties.
  4. The penalties are often less than we could earn by investing the money rather than making the estimated tax payments.

Have you looked at IRS Form 2210? I haven't prepared one recently but I did many during my years of CPA practice.

The easiest way to avoid the penalty usually is to timely pay in more than last year's total tax. Another way, where the bulk of taxable income happens after August is to pay up by January 15, 2013, then file 2210; the timing of income and deductions should show that you did not owe estimates for the first 3 quarters.

There is no penalty on the 4th payment if you file the return and pay in full by January 31, 2013. See this short paragraph (and the example) about a third of the way down in Don's link: "January payment. If you file your 2012 Form 1040 or Form 1040A by January

31, 2013, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2013."

The rules have changed in the 20+ years since I retired, so check with your own CPA, but I believe the basic outline for estimated taxes hasn't changed much - except for the penalty/interest rates.

RC

-- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2012 Deluxe R 5 and Windows Live Mail in Win7 x64)

Most of my taxable income comes in December when I take the obligatory IRA distribution for those over 71. So most of my tax is incurred in December of each year.

Question: do I need to make my estimated tax payments in the usual 4 equal payments or can I make it all in the 4th payment without this incurring a penalty for doing so?

Thanks, Jeff

Reply to
R. C. White

Thank you very much R.C. You are very kind to take the time to explain all this to me. I will look at Form 2210.

Here is a simple question: If I make _no_ estimated payments till the 4th payment, but in the 4th payment (or by December 31) I make either the full tax due or 90% of it then there should be no penalty due?

BTW, there seems to be no good way to set this up in TT deluxe desktop. TT support sent me to

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but that seems to have fields about various normal income sources (wages, etc.) received during the year. It does not seem to have a field for "IRA disbursements" which is what I only get in December of each year and which makes up the bulk of the estimated taxes due.

Reply to
Jeff

Just curious. Why take the disbursement as one sum at end of year? We just started receiving my wife's distributions and arranged to have them disbursed quarterly couple of weeks before scheduled estimated tax payment dates. That way the estimates turn out to be the same for each quarter and we have ready money at hand to make those payments.

Aga> > > Hi, Jeff.

Just curious.

Why take the disbursement as one sum once a year? We just started receiving my wife's distributions and arranged to have them disbursed quarterly couple of weeks before scheduled estimated tax payment dates. That way the estimates turn out to be the same for each quarter and we have ready money at hand to make those payments.

Again, just curious, recognizing truth of "to each his/her own".

Reply to
Al

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started receiving my wife's distributions and arranged to have them disbursed quarterly couple of weeks before scheduled estimated tax payment dates. That way the estimates turn out to be the same for each quarter and we have ready money at hand to make those payments.

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wife's distributions and arranged to have them disbursed quarterly couple of weeks before scheduled estimated tax payment dates. That way the estimates turn out to be the same for each quarter and we have ready money at hand to make those payments.

Because I am lucky enough to not need it for everyday expenses. So I leave it in the IRA to accumulate tax free until I am obliged by law to withdraw it.

Reply to
Jeff

Hi, Jeff.

Why rush? The 4th estimate is not due until January 15 of the next year, and if you file and pay the tax in full by January 31 of that next year, you can skip the 4th estimate altogether.

Note that there are no fields for any single category. You are not required to estimate your income at all, although that is a necessary factor, of course. What you must estimate is your actual tax, which doesn't depend on any single item. All of your income - from ALL sources - is included, lumped together sort of, but perhaps in separate baskets for capital gains and other special categories. And ALL of your deductions and exemptions must be considered, as well. Just as we don't file a separate income tax return for wages and another for interest and another for retirement income, we also don't make a separate estimate for each of those. What we must estimate is "the bottom line": the actual tax, after all kinds of income and after deductions and any special provisions.

One factor that many overlook when discussing estimated taxes is that we must also consider deductions, credits and other items. If you donate that entire IRA distribution to charity, it might cut your estimated tax for the year to zero. It's not just the flow of INCOME that affects your estimated tax, but the flow of ALL the items that will end up on your tax return for the year.

Remember that it's only an ESTIMATE, subject to correction when the final facts are known and your return is filed.

RC

-- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2012 Deluxe R 5 and Windows Live Mail in Win7 x64)

Thank you very much R.C. You are very kind to take the time to explain all this to me. I will look at Form 2210.

Here is a simple question: If I make _no_ estimated payments till the 4th payment, but in the 4th payment (or by December 31) I make either the full tax due or 90% of it then there should be no penalty due?

BTW, there seems to be no good way to set this up in TT deluxe desktop. TT support sent me to

formatting link
but that seems to have fields about various normal income sources (wages, etc.) received during the year. It does not seem to have a field for "IRA disbursements" which is what I only get in December of each year and which makes up the bulk of the estimated taxes due.

Reply to
R. C. White

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Thank you very very much.

Reply to
Jeff

" snipped-for-privacy@nospam.invalid" wrote in news:jo4r2m$qh7$ snipped-for-privacy@dont-email.me:

You might want to check out this:

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It is an excel spreadsheet that is designed to look at the various estimated tax rules as the year goes along and allows you to pick the minimum payment method. You enter data based on the estimated tax "quarters". You can do the first quarter for free to see if the concept is useful and then pay to unlock the other quarters if you like it.

In your situation it appears the annualized income method is one alternative to look at.

I have also used the prior-year TTax form 2210 as a "what-if" entering current year data and playing with payments.

scott s. .

Reply to
scott s.

Thank you.

Reply to
Jeff

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I take my RMD from my IRA in late November-early December. I have federal and state taxes withheld that are at least equal to 100% of the previous years net taxes. By tracking my interest and dividends in Quicken (don't rely on the crappy tax planner) I have a good idea of what taxes I will owe as well as what other withholding has been made.

Withholding is different than estimated tax payments. If your withholding covers your taxes due or at least 100% of last year's net tax before withholding, payments and refundable credits, there is no penalty. I looked into it years ago and it was legal. Also, Form 2210 has several exceptions to underpayment penalties, as RC noted.

Also, you might check in alt.misc.taxes.moderated for answers.

Reply to
Green Eggs & No Spam

Hi, Eggs.

Excellent suggestion! I'm sorry that I forgot to mention that. Thank you for reminding me.

Yes, tax amounts withheld by the employer or other payor are treated - for purposes of comput>> >>>> Hi, Jeff.

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I take my RMD from my IRA in late November-early December. I have federal and state taxes withheld that are at least equal to 100% of the previous years net taxes. By tracking my interest and dividends in Quicken (don't rely on the crappy tax planner) I have a good idea of what taxes I will owe as well as what other withholding has been made.

Withholding is different than estimated tax payments. If your withholding covers your taxes due or at least 100% of last year's net tax before withholding, payments and refundable credits, there is no penalty. I looked into it years ago and it was legal. Also, Form 2210 has several exceptions to underpayment penalties, as RC noted.

Also, you might check in alt.misc.taxes.moderated for answers.

Reply to
R. C. White

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