2024 Est. Tax payment compliance question

[mikej25]

I have unequal 2024 quarterly interest income and have taken my first 2024 RMD in Q1. I plan to make equal 2024 Est. tax payments and have over-withheld taxes from my RMD in Q1 to cover a large income stream I expect in Q4. My Q4 estimated tax payment won’t cover my Q4 income but my extra Q1 RMD withholding should.

If I’ve calculated correctly, will this satisfy my IRS/State estimated tax payment requirements?

Also, can Turbo tax calculate Estimated tax forms on an “Annualized” basis if I want to do this in the future?

[BettieG · Accepted solution]

As you know, our tax system (federal and states) is a pay as you go system, meaning that the tax authorities expect that you will pay your taxes throughout the year as you receive income, rather than waiting to the end of the tax year to pay your tax liability.  This is accomplished by either having sufficient withholding from your various income streams and/or making quarterly estimated tax payments during the year.  You may find this link to the IRS website helpful. 

Based on the information contained in your question, it sounds as though you have intentionally overpaid your tax liability in the first quarter, and you believe that this will more than cover the shortfall in the 4^th quarter.  If you are correct in your calculation, you should avoid an estimated penalty.

And, should you learn that you do, in fact, have an underpayment penalty, TurboTax offers the option to try to reduce the penalty by annualizing your income.

I hope this helps!

[mikej25]

Thank you BettieG for your prompt response and comment on "...TurboTax offers the option to try to reduce the penalty by annualizing your income." 

Do you have a turbo tax link that I can read-up on how this option works?
Thanks again for your help. mike

[LenaH]

When it comes time to file your return, in order to possibly reduce or eliminate your underpayment penalty, search for annualizing your tax (use this exact phrase) in TurboTax. This will take you to the underpayment penalty section and you will be taken through the steps to possibly reduce what you owe. For more information about the annualization method, please click here. 

@mikej25