Yes, it is worth the effort to see if annualizing your income will reduce or eliminate your proposed tax penalty. The annualized income installment method is a pay-as-you-go method to calculate the required quarterly estimated tax payments. You may receive income, such as business income, bonuses and capital gains, unevenly throughout the year. In your case, you mentioned that you took an IRA distribution in December 2021. Because you earned more income in late 2021 than you probably did in the early part of 2021, you can reduce your quarterly estimated tax payments by paying the tax based on actual quarterly tax projections.
In connection with using the annualized income method, TurboTax will prepare for you Schedule AI. Schedule AI will annualize your tax at the end of each payment period based on your income, deductions and other items relating to events that occurred from the beginning of the tax year through the end of the period.
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