The annualized income is used to reduce penalties on the current year underpayment of estimated tax. TurboTax can determine what you should pay in estimated tax based on the current tax year or the figures you enter when asked about the new tax year. However, it will provide equal installments throughout the year.
If you expect, in 2021, to owe at least as much as your tax liability is for 2020, then this is the best amount to use to eliminate any penalty for 2021. TurboTax will let you choose this option and divide the payments equally throughout the year.
If you expect to owe less, then you can determine each quarter what you should pay for that quarter.
Using the TaxCaster, Income Tax Calculator, each quarter will allow you to determine the amount due at that time. This will help you determine the amount you should pay each quarter.
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