Year round tracking

[wresnick]

Figuring out estimated taxes a year ahead of time doesn't do me much good. I might have no capital gains for the year if I don't sell securities or I might have a few hundred thousand, but I have no idea at the beginning of the year what I might sell. I might have an idea of what dividends I might get throughout the year, and could keep track of charitable contributions and other income, but I really need a tool to do this throughout the year as things happen.

In addition to knowing what my quarterly payments should be based on actual income (I'd still have an issue if I have a subsequent quarter where I sell securities at a huge loss) there are other things I'd want to figure out such as how much I could use from an IRA to make a Roth conversion without increasing my income to the point that my tax bracket goes up and my Medicare premiums go up.

I could wait until the end of the year, hope that Turbotax comes out with enough time for me to cram the numbers in to estimate, but is there a better way? I'd need to do this before making end of year decisions, so January would be too late.

[Mike9241]

you have two options

1) one safe harbor requires you to pay in 100% of your 2024 tax liability. It's 110% if your 2024 AGI is $150K or more. 1/4 for each period (see 2) for period and due date) 

2) use the 2024 form 2210 annualized income installment method to estimate your periodic liability. it's not really quarterly.  the first 3 periods end 3/31 (due 4/15), 5/31 (due 6/15), and 8/31 (due 9/15). There are also online tax calculators, I cannot say how accurate they are when it actually comes time to file. the AIIM is geared towards paying in 90% of your 2025 tax liability. 

either method can result in overpaying your taxes. That's just the way the tax laws work. paying 100% of your 2025 taxes on 1/15/2026 doesn't work because then there can be penalties for the first 3 quarters which may be mitigated by using the AIIM. 

state laws may vary. 

[baldietax]

I use a combination of excel and prior year TT version (desktop -  not sure online allows this), to run a couple of estimates during the year, just need to allow for changes in tax laws so deductions/limits are slightly different eg 401K/HSA, but gets close enough using prior year software.  You can also do final tax table calculation manually in excel if needed.  You can model a W2 based on pay statement and estimate final withholding etc; you’ll need to estimate interest and dividends - most brokerages provide tools to project income based on current holdings but won’t project reinvestment from bond maturities so you have to allow for that etc.  Once you have a baseline AGI and tax, you can start plugging in hypothetical 1099-R or cap gains into TT to see the effective tax rates for those and where you may trip up e.g. triggering 3.8% NIIT.  There may be other tax tools that are available more timely for 2025 limits/brackets.

Navigating the estimate tax safe harbor depends on your situation as to whether you can use 100% of 2024 and then timing and amount of cap gains or Roth conversion doesn’t matter penalty-wise but may be an overpayment.  You can also start out with that method and reduce estimated tax later in the year once situation is clearer, as overpayment in earlier quarters will eliminate underpayment later but you can’t eliminate an underpayment earlier by overpaying later.  Personally I did a Roth conversion last year so I paid more ES in Q4 and filed with AI method and was able to eliminate the penalty but found it a lot of extra work (need to do state also).  This year I expect my situation to be stable so I’m just keeping it simple and doing 100% of 2024 ES and then doing Roth conversion now instead of Q4.

[fanfare]

IRS requires you to establish your Required Annual Payment for the year and pay as you go.

You can base your estimate on prior year's tax , or 90% of this year's tax, whichever is smaller.
Each period your withholding and estimated tax paid must be at least 25% of the estimate, even if your income is uneven, [Otherwise, you will be penalized.] This is the simplified method, default.

If your periodic withholding and estimates in 2025 are at least 100% / 4 = 25% ( 110% / 4 for certain high income taxpayers) of your 2024 tax, there will be no penalty on your 2025 tax return, regardless of any jump in income.
You are protected from a sudden capital gain or Roth conversion at year end.

If your estimate is based on this year's tax and turns out to be wrong you may be penalized.
You can compensate by overestimating.
If your estimate is based on prior year's tax, you know that when you file by April 15, which is also the first Estimated Tax payment due date.  How convenient.