My income jumped because of a IRA to Roth conversion. When calculating the safe harbor estimated taxes for next year, does the IRS allow me to not include the Roth conversion amount as part of my safe harbor estimate?
- Yes, you do not have to include the ROTH conversion amount.
- However, you will not qualify for the safe harbor option of "The amount you paid during the tax year did not equal 100%, (110% for higher incomes) of your taxes owed the prior year."
If the recommendation is to not do a safe harbor estimate but to do an estimate on actual income, the way to calculate estimated taxes is to use the tax rate chart based on tax bracket (e.g. 24% for income between $89k - 170k). But most of my income is complicated. I have dividend income and a small business that has deductions. Do I basically have to do a complete tax return every quarter to figure out my taxes?
- You do not have to deal with the tax tables. You simply enter all of your income estimates. There are separate areas for business, dividends etc.
- You do not have to prepare the vouchers quarterly. All four will be printed with your tax return.
Does Turbo Tax CD help with the quarterly payments throughout the year?
- TurboTax will prepare your vouchers; however, you will have to keep track of them and make the payments yourself.
The underpayment penalty may apply if any of these apply:
- The amount of tax you paid during the tax year is less than 90% of the tax that you owed for the current year.
- The amount you paid during the tax year did not equal 100%, (110% for higher incomes) of your taxes owed the prior year.
- The IRS also says you can probably avoid the penalty if the amount you owe is less than $1,000, after subtracting withholding and refundable credits.
How do I prepare Estimated Taxes.
Quarterly payment due dates
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