Over the last several years, I've used TurboTax to complete my taxes. My wife and I have a relatively large AGI (~$250K), and with higher withholdings I ussually get a small refund, which I apply to my next years taxes. In addition, Turbotax calculates estimated tax payments. For Tax Year 2011, partially due to a 2010 Roth rollover I deffered to 2011/2012 and since we lost one of our dependants (daughter working living on her own), this year (2011) I owed about $1000 tax, but TurboTax also calculated 4 estimated tax payments of over $4000 each, the first due essentially now. Ouch. The kicker is, we plan to retire in September, which will complicate our taxes this year, but also results in only 9 months of earnings (though I still have half that Roth rollover to pay for). My question is, should I or am I obligated to prepay those taxes, having no real idea of what my income/tax obligation will be? Do I need to hire a tax attorney now to address this issue? Any help would be appreciated. Thanks.
Hi and welcome to Just Answer!
You are not required to pay estimate taxes - however - underpayments may result additional penalties when you file your tax return. What the tax software does - it estimates your possible Tax Liability and payments to avoid underpayment penalty based on your 2011 tax return.
so is there a way to estimate my tax obligtion, given my retirement and all the money that will be moving around ?(savings, pension etc), or should I leave that up to my financial planners (and affiliated tax people)?
Based on your information - I see two items that might affect your 2012 tax liability - (1) you still need to include into your taxable income half of the amount you rolled over to Roth IRA in 2010, and (2) because you will retire in September - your withholding will be less than in 2011.
my withholdings will be less, but should they be in proportion to my reduced income? I guess the quesion is what my other tax obligations will be related to stock nua, or earning/dividends on my saving plan.
Would you recommend paying estimated taxes just tocover myself or wait and have someone look closer at the numbers?
You can use the worksheet on page 7 in Form 1040-ES at http://www.irs.gov/pub/irs-pdf/f1040es.pdf to figure your estimated tax.Or you may locate that worksheet in your tax software and adjust income and withholding amounts.
Generally, you will avoid a penalty for underpayment of estimated tax if you pay at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
OK. Between working through the worksheet, and knowing what we paid this year, we should be able to get pretty close. Though TurboTax calculated $4000 quarterly payments, I'm assuming I can send any amount I think will eventually cover at least 90% (along with withholdings)?
Also - if your tax liability will be less than $1000 - there will not be any penalty
If you provide amounts - I will help you with estimations. Yes - you may increase your withholding to cover your tax liability and avoid estimate payments.
Let me work through the worksheet and stew on this for a while. My first concern was that first $4000 payment. Based on what you said, I think I'll defer that, realizing I may need to send Uncle Sam something in the near future.
That is not an issue - as I said - you are not obligated to make exstimated payments and the penalty is relatevely small.
OK, thanks. I feel a bit better now.
Just put here - your estimated taxable income and withholding - and we will workout possible path forward.
I don't have those numbers at hand. Let me gather them together, and I'll get back with you for some direction.
Sure - take your time.
Thanks for now.
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