Estimated Tax Payments

[SP5368]

I was hoping to perform a Roth conversion in Q4 and I want to avoid a penalty for under tax payment.  My situation is that I will not be able to rely on Safe Harbor as I had a much larger tax liability last year and will not get near the 110% payments of last years liability.  Can I make a large estimated tax payment for Q4 to cover this liability.  How much additional work will be needed when I am filing my 2023 taxes (I think it requires breakout on form 2210?)  Thanks

[Bsch4477]

Sure. You can make a large estimated payment. Withdrawals from a retirement plan are assumed by the IRS to have been made equally over the course of the year so you might not have to deal with the 2210. 

[dmertz]

The default treatment of income as being received uniformly throughout the year is the problem.  Assuming that your balance due will be more than $1,000 without a Q4 estimated tax payment, to avoid underpayment penalties for Q1 through Q3 you'll almost certainly need annualize income by filing Schedule AI of Form 2210 unless you sufficiently over-withheld throughout the year.  Unlike withholding, a particular estimated tax payment is applied when paid rather than being being applied equally throughout the year.

If you have variety of income and deductions throughout the year, figuring out what income and what deductions occurred in which quarter can take a lot of effort.  When I've prepared Schedule AI, I've found it to take as much time as the entire remainder of my tax return.

[dmertz]

An alternative to making an estimated tax payment would be to obtain a distribution from the traditional IRA, have sufficient taxes withheld, substitute other funds (the funds that you would have used to make an estimated tax payment) for the portion withheld for taxes, then deposit into a Roth IRA as a 60-day conversion an amount equal to the amount distributed from the traditional IRA.  Unlike an estimated tax payment, tax withholding is treated by default as having been paid uniformly throughout the year.

[SP5368]

Thanks for your information.  I appreciate you comment about the time it takes to complete the AI (Form 2210) as that was my major concern.  I am in a very unique situation this year as I am in between employers (New job starting Jan 1) or I would make and adjustment to my employer withholding.  I appreciate your comments/ ideas.