Must admit I am still a bit of a novice in avoiding tax penalties. Over the past three years I have avoided a tax penalty in 2 of the 3 years ($70 in 2023). This week I tried to use the IRS calculator to project my tax liability for 2025. I question the result as it computed a refund (HIGHLY unlikely) as it does not account for social security. (Social security was not offered as a choice as it was blacked out). Soooo, I once again reverted to a stubby pencil drill. We are into our early 70's so here is how I determined my potential tax bill. I (1) added all income projections to include interest from CDs; (2) computed annual taxes I will pay based upon a summation of all the monthly tax payments from pensions and social security; (3) subtracted the standard deduction of $33,200 for TY 2025 (as we have no other deductions). I then compared the taxes I will pay for the year to what I project my tax bill for 2025 to be based upon the IRS table that computes taxes for my salary range to be $11,157 plus 22% of remaining income over $96,950. If I made that easy enough to follow, I believe I will remain penalty free as long as the taxes I pay are at least 90% of the computed projection. Stated more simply, IF MY TAX PROJECTION COMPUTES OUT TO BE $30K, I WILL BE PENALTY FREE SO LONG AS THE TAXES I PAID THROUGHOUT THE YEAR EQUAL AT LEAST $27K (90% of $30,000). If true, I should be good until the year after I turn 73 and my RMDs kick in. Looking ahead, what is the best way to combat increased income and the resulting tax liability due to RMDs? Pay quarterly tax estimates? Thanks.
