Annualized Installment Method (Regular): Turbotax Interview Questions

[artg]

I’ve posted this question twice (with absolutely no responses) so maybe the third time will be the charm.  I believe (although I'm not positive) I may be charged a penalty for underpayment of Estimated taxes on my 2019 return.  I also believe I may be able to reduce (or eliminate) the penalty due to the fact that the bulk of our non-qualified mutual fund distributions are made in December.  For example, all the Long and Short Term Capital Gains distributions were made about two weeks ago.  What I'd like to begin doing is preparing for the TT interview when I get to that part of my return.  I'm comfortable with the four calendar periods as follows:

1 Jan-31 Mar

1 Jan-31 May

1 Jan-31 Aug

1 Jan-31 Dec

What I'd like someone in the community to tell me is what will I need readily available when I get that part of TT?  I use Quicken to track my income and investment transactions so I can easily use "Custom dates" to extract data.  What I'd like to know, as specific as possible, is what am I going to be asked? Between Quicken and MS Excel I'm confident that I can produce the information needed if I knew what was needed.  Does anyone have any experience with this issue please?  By the way, I use the desktop version of TT Premier.  Thank you.

[tagteam]

I am sorry you have not received any kind of response, but the post is a bit abstruse in the sense that it is difficult to determine what you would need to fully answer your question. 

You can always create a test (aka dummy) return and run through the AI screens yourself after inputting figures that roughly approximate your current tax scenario. I have modified a test return and the results for the underpayment section are shown in the screenshots below.

[artg]

Ok, we're clearly getting somewhere and thank you.  Allow me to attempt to provide more clarity.  Our income is our pension (1099-R) which has taxes with held (FITW.)  Additionally we'll receive a series of 1099-Div which will have taxable Dividends, Short and Long Term Capital Gains.  We will NOT have any Deductions for Qualified Business Income.  I do not understand "Other Taxes" but I can add that we have made Estimated Payments throughout the year. The Estimated Payments were NOT four equal payments.  However (and I think this is important) our FITW plus the Estimated taxes we've paid are GREATER than 110% of our 2018 tax liability (Line 15 of our 2018 1040.) Have I been a little less abstruse and do you wish to add more to your answer?  Again and most importantly, thank you.

[tagteam · Accepted solution]

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@artg wrote:

However (and I think this is important) our FITW plus the Estimated taxes we've paid are GREATER than 110% of our 2018 tax liability (Line 15 of our 2018 1040.) 

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Yes, that is indeed important. In that event, you will have no underpayment penalty and should not have to bother with the AI method.

See https://www.irs.gov/taxtopics/tc306

The Other Taxes screen, including Guidance is shown in the screenshot below (in case you are still curious).

[artg]

Thank you again.  I'm prepared right now (31 Dec) with the AGI by period.  Tomorrow morning (1 Jan) I'll be able to finalize Dividends and (ST/LT) Capital Gains.  The bottom line is your answer was VERY HELPFUL and I hope you're correct  with respect to the Safe Harbor rule.

[tagteam]

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@artg wrote:

....I hope you're correct  with respect to the Safe Harbor rule.

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You stated you paid 110% and that should be more than sufficient:

In general, taxpayers don’t have to pay a penalty if they meet any of these conditions:

• They owe less than $1,000 in tax with their tax return.
• Throughout the year, they paid the smaller of these two amounts:
  • at least 90 percent of the tax for the current year
  • 100 percent of the tax shown on their return for the prior year – this can increase to 110 percent based on adjusted gross income

See https://www.irs.gov/newsroom/the-basics-of-estimated-taxes-for-individuals

[Happycitizen]

I'm writing from my own point of view (and I am NOT an accountant), and I use TurboTax Premier.  I don't know if the other version of TurboTax give you the same experience.  The Annualized Income Method is used to avoid underpayment of taxes during the year when much of your income is at the end of the year (in my case).  FIRST, complete your taxes in TurboTax not using the Annualized Income Method.  Once you are happy with that, then do the following:

Under the "Federal Taxes" gray tab at the top, select "Other Tax Situations".  Then, under Additional Tax Payments section, select "Update" on the Underpayment penalties line. You will go through several screens (which you shouldn't have to do anything because you've already done your taxes), but you will come to a screen that asks you if you want to use the Annualized Income Method - well yes, so hit the "Yes" button.

At this point, to proceed, you will need several pieces of information.  I have a month by month spreadsheet with this information.  The pieces of information I needed were (there may be others but this was my tax situation):

1. Annualized Adjusted Gross Income

2. Qualified Dividends

3. Qualified Business Income - for most, reported on 1099-DIV box 5.

4. Other Taxes - One situation, you incur this when (filing status = single) you have income over $200,000 and your investment income is greater than zero.

As in other posts, you need to be able to summarize this information for the periods 1/1 - 3/31, 1/1 - 5/31, 1/1 - 8/31, and 1/1 - 12/31.  Because you completed you taxes initially not using the Annualized Income Method, TurboTax will usually supply the totals (i.e. the 1/1 - 12/31 total).

I hope this helps, I invest a lot of time each year on the above mentioned spreadsheet because I've found timing is critical.