Achieving Safe Harbor Through A Single Estimated Payment

Forum|Forum|6 years ago
March 26, 2020
1 reply
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Let’s assume that my day job will yield an equal amount of wage income (approx. $53,000) and federal taxes withheld (approx. $5,000) in 2020 as it did in 2019. I still had $2500 in taxes due in my 2019 return as a result of additional income through mutual fund dividends. My total tax liability in 2019 was $7,500 ($5000 + $2500).

I am certain that in 2020 my additional income will be significantly higher than last year and, as such, my 2020 taxes owed will greatly exceed $2500 in 2020.

Can I just pay one estimated tax payment in Q1 for $2,500 and avoid additional quarterly estimated tax payments for 2020 since I would be having 2020 taxes withheld from my paycheck (of at least $5,000) and this one 2020 estimated tax payment of $2,500 would result in having paid at least 100% of my prior year’s total tax liability? Would this accomplish “safe harbor “? Of course I would be making sure that I have enough money next April to fully pay what I owe, but I want to earn interest on this additional income and I would like to avoid the hassle of having to pay four quarterly payments that are really just estimates anyway. The key is I will pay the taxes due but I want to avoid any penalty.

Not A Product Question

pk_

Level 15

@timbukktoo , if the simple question is can a taxpayer whom is required to / should pay estimated taxes during the year ( in addition to with-holdings ), pay a onetime and not per quarter --- YES. This may avoid interest charges if the tax liability outpaces the required withholdings. Note that this applicable to both the Fed and the State.

Is this what you meaant ?

timbukktooAuthor

Level 3

Not sure based on how you phrased it.

pk_

Level 15

@timbukktoo if you pay only one time and the full amount instead of paying quarterly, you will achieve the same result --- i.e. you can only one time.