Penalty for not making estimated tax payments?

Turbotax tells me I have to make a $2 estimated tax payment to get into safe harbor. What penalty am I looking at for ignoring that?

Reply to
Confused
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zero.

Reply to
Alan

Is there an amount below which there is no penalty? I thought it might be $0.10, but am surprised at zero.

Reply to
Confused

$0.10, but am surprised at zero.

Do you know how much it costs the the government or for that matter any business to cut an invoice and then follow up to collect it?

Reply to
Alan

They don't have to cut an invoice, you're supposed to calculate your own penalty when filling out your tax return the following year.

Reply to
Barry Margolin

I've been overriding calculated estimated tax penalties (the penalty, not the amount of payment to avoid a penalty) that are =< than $10 for years and have never seen a letter from the IRS.

Reply to
Alan

Actually, no. You have the option to let the IRS calculate the underpayment of estimated tax penalty (which is not really a penalty, just a very reasonable interest charge). In other words, Form 2210 is not mandatory.

As Alan said, for relatively small amounts, the IRS does not seem to follow up. And that makes sense, to not spend $20 to collect $10, for example.

Reply to
Mark Bole

Since form 2210 seems to be the key, I went there. If I am reading it correctly, there is no need to pay estimated taxes on less than $1,000; so my penalty on $2, or $999 is zero. Is that correct?

Reply to
Confused

$1,000 is part of the safe harbor rule. So if you'll owe $1,002 (and none of the other safe harbor provisions apply), you need to make a $2 estimated tax payment to avoid owing a penalty.

Reply to
Barry Margolin

Have you been reading the previous responses? Form 2210 is not "the key" in the scenario you posted.

It's more subtle than that. *How* you got to a balance due of $1K matters, was it through withholding, equal quarterly estimated payments, or unequal estimated payments? Or perhaps your total tax liability (not balance due) is $1K?

It is possible to get a refund and still have an underpayment of estimated tax penalty.

Now we're back to what Turbotax indicated to the OP.

If the OP wants more help, they ought to post some more details, such as tax year, AGI, total tax liability, prior year tax liability, balance due or refund, etc. All of those can factor in to an underpayment of estimated tax interest charge (aka penalty).

In line with previous comments about IRS administration cost/benefit, it doesn't seem worth much time to deal with a $2 item on an annual tax return.

Reply to
Mark Bole

I've been overriding calculated estimated tax penalties (the penalty, not the amount of payment to avoid a penalty) that are =< than $10 for years and have never seen a letter from the IRS. ================ Technically, one can only ignore a penalty of $0.99 or less (under truncation rules - 26 USC 6102(a)(1) which may be treated as zero).

Reply to
D. Stussy

One can ignore a penalty if the IRS says they will calculate it for you, and then they don't calculate it.

Reply to
Mark Bole

Mark is right on. The taxpayer is under no obligation to compute an estimated tax penalty. The taxpayer is under no obligation to report a penalty calculated by a piece of software or calculated manually.

Reply to
Alan

Okay, AGI was $878, and tax owed on that was $2. Turbotax says I have to pay 100% of previous years tax to get to safe harbor, or $2.

Reply to
Confused

The chance of going after for that is zilch. What have you been doing on more recent income?

I am surprised at myself for even bothering to make a comment, and how sleepy the moderator was.

Reply to
Salmon Egg

I understand they would not go after it. But what would the penalty be IF they did go after it. None because it is below $1,000 or something else.

Reply to
Confused

Safe harbor is the lesser of:

  1. 100% of the previous year's tax
  2. 90% of this year's tax
  3. this year's tax - ,000

But until you have all your income data for this year, you can't calculate #2 or #3. So TT suggests estimated taxes based only on #1. (Actually, I think you can also tell it to calculate estimated taxes based on you entering estimated incomes and deductions, or extrapolating from the previous year.)

If you fall short of the safe harbor, the penalty is based on how far you were from the actual tax liability, NOT how far you were from safe harbor. So if your taxes go up significantly this year, it's possible that not paying that $2 estimated tax could leave you more than $1,000 and more than 10% short of your 2013 tax, and you'll owe a penalty. If you end up owing $1,000, the penalty is about $20.

But if your 2013 taxes are likely to be similar to your 2012 taxes, then you can assume that you'll still fall within #2 or #3, and there won't be a penalty.

Reply to
Barry Margolin

So if I have 878 income in 2012 and owe $2 tax, but have $1,000,000 income in

2013, the penalty is based on the 2013 tax is is pretty substantial if I don't pay $2 estimated tax to get into to safe harbor. Is that right?
Reply to
Confused

2013, the penalty is based on the 2013 tax is is pretty substantial if I don't pay $2 estimated tax to get into to safe harbor. Is that right?

No, that is wrong. Just look at Form 2210 pages 1 and 2 the short method to obtain the formula. You will see that if your tax in 2012 is $2 and your tax in 2013 is $300,000 and you failed to have withholding of $2 or make an estimated payment of $2 for 2013, the penalty for 2013 will be computed on $2 not $300,000. Effectively, there is no penalty.

Reply to
Alan

You're right, I missed line 9 of 2210: the "required annual payment" is the smaller of line 5 (90% of current year's tax) and line 8 (previous year's tax), and the penalty is based on subtracting your withholding and estimated taxes from line 9.

Reply to
Barry Margolin

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