Form 2210 (AI method) questions Presumab

When using this method you first have to assign income, deductions and credits to a particular quarter. Presumably, for something like wages, you'd just look at your paystubs. But what about something like mutual fund dividends? You can usually find the total amount of the dividends received each quarter from your statements, and the mutual fund company usually tells you what proportion of the year's dividend qualifies for the lower rate, but you don't usually have enough information to determine what proportion of each quarter's divdend qualifies. Is this information usually available on request? If it isn't available, what do you do?

Bill.

Reply to
bill-deja
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Dividends are paid on a specific date. If you don't have the detail in your statements, it is typically available online from the mutual fund company.

Reply to
Alan

Watch out. Your 1099 may be entirely different from the "guess" your MF told you in November, and the quarterly statements you got along with the dividend. No way will anyone tell you to use a different figure than their guess until it's official at the end of the year I guess (I never tried it) you could use the earliest ones if they are more favorable and contend you figured the amount to pay based on that advice and estimate. Some people actually compute the Annualized installment as each quarter ends. It can be easy or a nightmare, but luckily there is a 2210 tax calculator available on the web to do this because you tax program only does it after the year is over.

It can get pretty tricky if you're subject to AMT, credits and/or deductions, let alone phase-outs. To correctly compute each quarter requires you to complute your 1040 with all the forms, but using only data to the end of that quarter. It can be rewarding, however, because your first Annualized Installment multiplies by 4 deductions that might no reoccur (like your capital loss limitation or carryover) before figuring the annualized tax.

ed

Reply to
ed

What I did for my return is multiply the annual 1099-DIV amounts (ordinary and qualified) by 3/12 for Q1, 2/12 for Q2, 3/12 for Q3,

4/12 for Q4. The 1099 detail lists each dividend and may list whether it was qualified, if you want to be exact.
Reply to
removeps-groups

This is not correct. You must know when each dividend was paid. USe that date. It will be to your advantage.

ed

Reply to
ed

Yes, I print the paycheck stubs and mutual fund tax statements at the end of each tax quarter. Then I fill out the next quarter column of the 2210AI to determine the minimum tax that avoids a penalty. Its only an approximation because final tax brackets arent ready until Nov. But in most years you overestimate your taxes a bit. This procedure avoids digging around for old statements a year in the future.

Reply to
rick++

This, as I see it, is the crux of the problem. When you get the dividends during the year, the break down into qualified and non- qualified distributions is surrounded with all sorts of weasel words telling you not to take it too seriously. At the end of the year you get a 1099 for the whole year that has the real numbers _for the whole year_. The issue is how does one get the real numbers for each quarter. In my experience, they aren't widely publicised, and I've never been in a position where it was worth my time to try and track it down. It's possible that a reasonable course is ignoring the wesel words: as a rough check, do the "estimates" add up to the number on the 1099. My question boils down to (1) does this information actually even exist? (2) if not, what do you do? Use the estimates, since that's the best you can do? Pro rate the numbers from the

1099? Some combination of thw two approaches? Assume that none of the dividends are qualified? Invest only in mutual funds that pay dividends annually rather than more frequently?

I think the software is a bit of a red herring. The hard part is gathering the inputs, not pushing through the calculations, although I suppose the tax software can help avoid idiotic mistakes.

Bill

Reply to
bill-deja

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Bill: rick++ has he own spreadsheet but *estimates* each quarter in advance when he should be using his *actual* income and deductions for the *prior* quarter that just expired. The 2210 was meant to be used with ACTUAL figures, not future estimates.

As for Qualified Dividends, use the figure given you with the distribution to compute your Quarterly installments. Then, before correcting your figures for 1099 values save a copy with the original figures. and then use the one most advantages to you. if it mkakes a critical difference. The IRS should accept your using your MF's estimates since their Publication 505 tells you how to try to figure each installment. In the past several years the 1099 figures usually produced less AI installments (even with the abundance of return of capital distirbutions) due to AMT exemption adjustments and other late- year tax relief.

Being the author of the only 2210 AI calculator for current installments in existance I can tell you it is not a *red herring* but a legitimate program to develop the lowest installments that do not create a penalty. Not only does it eliminate errors (as rick++'s spreadsheet encounters) but it has buil-in factors to maximize annualization the average taxspayer would never know existed (let alone *idiotic mistakes*).. Actually, the *programk* was already there in Publication505, but so convoluted it was impossible to follow, and left out any mention of how to calculate AMT Yes, collecting the data is a pain, but easier as it occurs than after the fact, and I note those commenting actually do accumulate the data: they just don't use it effectively.

No one likes to pay penalties, so consider that the altermnatives are to use 1/4 of last year's tax (or 110% of it) even though you know your current year's tax will be lower than last year (maybe?), or GUESSING at a full year to pay 90% of that estimated tax, versus knowing that your installment will elimate a penalty, even if kyour income increases unexpectedly, and is actually lower than the 90% guess..

ed

Reply to
ed

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