I opened up the PDF I saved of my 1040 for 2022 for the first time today and noticed on the first page is a section for estimated payments for 2023. It lists out four voucher numbers and the respective date and amount due for each voucher.
Regarding my last post about which line item from form 1040 to use as an estimation basis, it's interesting that TT went with the lower number (line 37) divided by 4. This value is 1/4 of what I would pay using line 24 divided by 4. However, I chose to error on the side of caution and followed Vanessa's advice and pay the higher value. Actually, I paid a little more as I figured the following approach would be the most conservative:
I have setup a spreadsheet that allows me to enter the amount of money I make each quarter and then calculates everything. I'll share an example of how it breaks down in case my (what I think is an ultra conservative) approach is helpful to other people who want to play it safe.
Q1 income is $20,000.
$20,000 x 4 = $80,000 (estimated annual income)
2023 married filing jointly tax table shows 12% tax rate over $22,000 so….
$80,000 - $22,000 = $58,000 which is multiplied by 12% to get $6,960.
$6,960 + $2,200 = $9,160 (the $2,200 comes from the 10% tax rate on the first $22,000 from the tax table).
$9,160 divided by 4 (to get a quarterly rate) is $2,290.
Now for SE tax…. $20,000 x 15.3% = $3,060.
$2,290 + $3,060 = $5,350 for total tax due for Q1.
Q2 income is $10,000
Q1 + Q2 ($20,000 + $10,000) then multiply by 2 = $60,000 (new estimated annual income).
$60,000 - $22,000 = $38,000 which is multiplied by 12% to get $4,560.
$4,560 + $2,200 = $6,760.
$6,760 divided by 4 (to get a quarterly rate) is $1,690.
Now for SE tax…. $10,000 x 15.3% = $1,530.
$1,690 + $1,530 = $3,220 for total tax due for Q2.
Q3 income is calculated similarly except I add Q1, Q2, and Q3 together, then multiply by 4 and divide by 3 to get the estimated annual income, and then I follow the same calculations as before.
By the time I get to the end of Q4, it’s no longer an estimation and I can just calculate the total taxes due for the year and pay the remaining tax amount on my Q4 payment.
Anyway, this is my first year paying the estimated taxes, so I'll see how it goes using this method. I so badly wish I was only sending in what TT has estimated on page 1 of the PDF I have saved after I filed my 2022 taxes which is less than 1/4 of what I actually paid for this first quarter. I guess I'll anticipate a tax return next year (which is what I was trying to minimize as I'd rather make money off of the tax money I have set aside).
I wish I knew exactly how the IRS looks at all this. For now, I just don't want to be hit with a penalty for underpayment.
