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withholding error, will owe $2000, what should I do ?

Thanks to error by my annuity provider, they did not implemented a requested increase to my withholding. As a result, when I file my return this spring, instead of slipping in just under the $1000 threshold for owing no penalty, I will owe about $2000. This was the last of my 2021 quarterly payments from this annuity, so no chance to withhold the amount going forward.

Is the IRS likely to do anything but charge me interest ? (FWIW, the reason my taxable income was so much higher is that I decided to sell a bunch of stock, hence long-term capital gains).

What is my best course of action now ? Should I make a $2000 estimated-tax payment now ? I'll still owe interest (if I don't file Scedhule AI) because I missed the first two estimated-tax deadlines, as well as the third. But presumably it'll be a bit less interest, and perhaps more importantly, I imagine it'll be less likely to raise eyebrows at the IRS than if I wait until I file my return.

Thanks for any advice.

Reply to
JGE
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Do you have any other sources of income where tax is withheld or can be withheld, such as a job, IRA withdrawals, etc.? You could have additional tax withheld from other income to make up for the missed withholding on the annuity. (I wouldn't mess with Social Security or pensions, though. I wouldn't be confident that you could change the withholding, then change it back, without running into problems.)

If you can't adjust other withholding, make the estimated tax payment now. As you said, that will at least minimize any penalty or interest. Schedule AI is a pain in the neck, but it might save you a few bucks, or even eliminate the penalty. You could give it a try when you prepare your tax return.

Don't stress about the IRS giving you a hard time. They aren't going to come after you about a $2,000 payment due, and owing $2,000 with your return is not going to "raise eyebrows" or trigger an audit. You might have an underpayment penalty on your tax return, but it will probably be small. You'll probably never hear from the IRS about it. At worst you'll get a bill for a small amount of penalty or interest. Pay the bill and that will be the end of it.

Bob Sandler

Reply to
Bob Sandler

No.

Ok.

Thanks, that was what I was worried about. I'm now dealing with my third erroneous CP2000 - no fun.

Reply to
JGE

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