THE PROBLEM AND THE FIX
After 2.5 hours on the phone with TurboTax (TT) help, I got nowhere. I have been using TT since 1995 and while there have been issues, this one should have never slipped through any level of testing.
I then bought and downloaded a copy of another tax software that would let me see more about what is going on with Capital Gains and Qualified Dividends calculation on Form 2210AI. After completing my taxes on the other software it showed me where TT is wrong and how to fix it.
Line 14 (your tax) gets its value from Line 13. Line 13 is viewed as ordinary income until it uses the values in the Capital Gains Tax Computation Smart Worksheet (located just above Line 14 when using Forms). The problem lies with the Annualization amounts (Line 5). It multiplies your income by this level, which is correct, but it does not use that same factor in calculating your Capital Gains or Qualified Dividends. On the other tax software I purchased it worked fine but not on TT. The only fix I have found is to multiply your Capital Gains, (Line B in the Smart Worksheet) and your Qualified Dividends (Line E in the Smart Worksheet) by the same factor. These are 4.0 in 1Q and 2.4 in 2Q and 1.5 in 3Q and 1.0 in 4Q. When I did this, the annualized income/penalty calc was the same on TT as it was on the other tax software and matched my tax spreadsheet very closely.
I am not a tax professional and did most of this work between midnight and 5AM so take this information for what it cost you (nothing) but I do think this shows where the TT calc is wrong and how to fix it. I ran an error check on both software programs and both came back fine.
