how early can one file for an extension ?

Most states with income taxes have provisions for estimated tax deposits. So, yes, you can pay your 2010 state income tax before 2010 ends. In fact, the states wish everyone would do that.

No extension of your 2010 state return is necessary to accomplish that.

Since you said a lot of your income will be in January/2010: If you choose the annualize method (where you compute a tax return each quarter), it is your first quarter payment that will be large. You must make this payment by 4/15/2010. If you make a payment by

12/31/2010, you could still be charged interest as your first quarter payment was too small. The reason I say "could be" instead of "will be" is that you'll only be charged the interest if the IRS or state equivalent finds out that your income came in the first quarter. But the rule is that interest ought to be charged.

However, since the payments for the 2nd, 3rd, 4th quarters may be small or zero, you might want to make equal estimated payments each quarter. BTW, the quarters are 3, 2, 3, and 4 months long. So try to predict your tax for the whole year. For state, pay 1/4 each quarter. For federal, multiply by 90% and pay 1/4 each quarter.

But you may want to consider using prior year safe harbor rule for federal tax: If your tax paid through withholding or equal estimated payments is equal to 110% of last year's tax, then there is no penalty (there is a 100% rule too but let's ignore that). So if last year your total federal tax was 10k, then this year you only need to pay

11k. You can either pay $2,750 each quarter, or you can have 11k withheld from your IRA distributions, taxable pensions, social security, W2 (maybe a part time job), etc. Be prepared to pay the remainder on 4/15/2011.

States have a safe harbor rule -- at least CA does, but in 2009 you cannot use prior year safe harbor if your income is above 1 million -- but as you want a deduction for state taxes, maybe it's better to pay

100% of your total tax (normally you only have to pay 90% of your total tax).

For CA, the way to pay online is

To be safe, be sure to schedule your payment a day in advance -- ie. pay on 4/14, 6/14, 9/14, 12/29.

Finally, be aware of AMT. If you pay too much state tax, you may end up in AMT, and under AMT you get no deduction for state taxes.

Maybe see a pro this year to figure out all the details.

There's no need for extensions.

Thanks for answering, but I am confused. It seems like there are three ways to make a tax payment (other than withholding, of course): estimated tax payment, with request for extension, or with tax return. You say I don't need a request for extension, and there's no way I'd be able to file my final return before year's end. So that leaves estimated tax payment, but if the final one (that I make in December) is different from the other three, then I'll likely have a penalty; I want to avoid that.

Thanks, I understand all this. The whole point of my question is that I may not realize that I will have a lot of tax due until it's too late to make the earlier payments (for example, I make TWO Roth conversions, each of which fills my 15% bracket, and both perform so well that I decide I want to keep both even though one is up in the 25% bracket). And I don't want the 4th payment to be unequal, because then I'll likely incur a penalty even if I annualize.

Yes, I understand the safe-harbor rule and intend to use it for federal. My state has a similar rule, and I'll easily meet it, but as I said, my goal is also to make sure I have no state tax payments in 2011.

OK, this part confuses me.

If you make a Roth conversion, any subsequent growth (performance) inside the Roth IRA is tax free. The tax on the conversion is determined based on the value of the IRA at the time you make the conversion. So I don't see how the performance of the Roth IRA has any bearing on either the desire to keep the conversion or on any additional taxes due. How is that supposed to work?

The only way I can see you getting into trouble is if you have some other, non-conversion income that is variable and that comes in higher than you expect.

Suppose I convert $25K. Suppose the investment performs very poorly and loses 50% of its value. Now I have effectively paid double the tax-rate on my conversion. If I recharacterize it and reconvert later, I have effectively halved my tax on the conversion. Yes, I realize there are rules about when I can re-convert.

Instead of worrying about re-conversions, another strategy might be to convert two investment positions, each into a separate Roth IRA account. Do this in January of year I. You have until October of year I+1 (21 months later) to recharacterize. You recharacterize the one with poorer performance. Since it is in a distinct Roth, you get to recharacterize the lower value of that poor investment (un-diluted by the better performance of the other). (In the limit, you could do N conversions and recharacterize N-1 of them, keeping only the best-performing one, but it gets silly ...)

Suppose both perform very well, and you decide you want to keep BOTH conversions (recharacterize neither of them), even though you'll pay a lot more taxes. This would be the position where I realize I owe a lot more than my estimated taxes cover. Since I'm using the safe-harbor rule (for federal and state), I'm not worried about penalties. However, since I'm "bunching" deductions (taking standard deduction and itemizing on alternating years), I don't want to pay all that extra state tax in a "standard" year. If the big tax bill is due in a "standard" year, I want to pay it in the previous year, in December. If I do this with my 4th estimated tax payment, I'm no longer eligible for safe harbor, because my estimated tax payments are no longer equal. I can't make them equal, because I don't realize I want to keep both conversions at the beginning of the year.

The extension only changes paperwork dates, not required tax payment dates. You are required to pay the best estimate on the annual or quarterly due dates, else risk penalty.

Uh, yeah ? I believe I stated that I'd be shielded from penalties (on both federal and state) with the safe-harbor rule, so I am not concerned about that.

That's a different issue entirely. If you pay the tax required under the save-harbor rules by April 15, you'll be ok. If you don't, the safe-harbor rules won't help you avoid interest and penalties from an underpayment of tax claim.

It seems like this thread is talking in circles. Not only will I pay the required taxes by 15 Apr 2011, I will have paid them by 31 Dec 2010. Maybe I did not make all this clear in my first post of the thread. I don't want to pay ANY state tax in 2011, because I'll be using the standard deduction. So, how can I pay it in December 2010 (when I finally realize I'm going to owe a bunch of state tax because I decide not to recharacterize some of my Roth conversions after all) ? Yes, I can make a big estimated tax payment, the one due

15 Jan 2011, in December of 2010. But then I'll have unequal estimated-tax payments, which will be bad - I'll likely have to annualize and/or the safe-harbor will no longer work.

I can imagine another way to pay the extra state tax in December 2011. So I ask again: CAN I file for an extension (of time to file my 2010 taxes) in December of 2010 ??

snip

Previously, you said:

"If I do this with my 4th estimated tax payment, I'm no longer eligible for safe harbor, because my estimated tax payments are no longer equal. I can't make them equal, because I don't realize I want to keep both conversions at the beginning of the year."

I think that's where you went off the rails. It is not necessary that your quarterly payments be equal in amount to qualify for the prior year safe harbor, which you earlier stated that your state provides. (You haven't told us what state you are dealing with; that information might be helpful.) All that is required is that you pay four timely installments, each of which is AT LEAST 1/4 (or whatever percentage your state requires) of the requisite safe harbor amount -- usually

100% or 110% of your tax liability for the previous year. If one or more of the payments is MORE THAN 1/4 of the safe harbor amount, no harm, no foul. That does not disqualify you from the safe harbor unless your state has some really peculiar rule.

You can prove this to yourself by working through the "regular method" of calculating the penalty for underpayment of estimated taxes on Page

3 of Form 2210. The form takes into account the fact that payments may not actually have been equal (if they were, you could use the short method on Page 2) and carries any underpayment or overpayment to the next quarter. So, for example, if your first quarterly payment was short, you could stop the penalty at the next quarter by increasing the second quarter payment to cover the first quarter underpayment.

All that is necessary to avoid penalty altogether is that each of the quarterly payments be at least 1/4 of the amount required to be paid

-- i.e., 100% or 110% of the prior year tax. Assuming your state uses a similar method of calculating the penalty, it doesn't matter how big your fourth quarter payment is -- or when you pay it, as long as it is on or before Jan. 15, 2011.

If for some reason you don't qualify for the safe harbor (for example, if you're in California and your 2009 AGI was more than $1 million), making a larger payment in December 2010, or as soon as you know that your 2010 liability is going to be larger than the original plan, can only help you, not hurt you. Estimated tax penalties run from the date the installment was due to the date it was paid, or the original due date of the return, whichever is earlier. So if there is going to be an underpayment, the earlier you pay it, the lower your penalty.

As for filing an extension of time to file your 2010 state return and making the extra payment with it, I don't know of any rule that would say you can't do it today, if you really want to. Many states no longer require a paper extension of time to file and provide only a voucher form to cover the payment. Anyway, you can send your state money at any time, and as long as you cover it with some kind of voucher that makes it clear what tax year you want it applied to, they'll be happy to take your money and credit it as you wish.

Just be sure the additional payment in 2010 isn't going to put you into a federal AMT. No point in accelerating a deduction that isn't going to do you any good.

Katie in San Diego