Estimated tax penslties

[Evetsh]

As a senior I can forgo making estimated tax payments by covering my tax bill in our RMD distributions. If we cover only 45% of our tax bill in the RMDs and the rest in only a 4th quarter estimated, should we incur a late penalty on the whole tax bill or just the 55% not paid through RMD? Turbo has assessed us a full penalty. Help!

[PatriciaV]

You may be able to reduce or eliminate the penalty for late payments by completing the Annualized Income Installment Method schedule that is part of Form 2210. This schedule allows you to enter your income by quarter, which may make a difference in how your tax and penalty is calculated. You do need good records for income and expenses by quarter to make use of this schedule.

To enter this information in TurboTax, go to Federal Taxes >> Other Tax Situations >> Underpayment penalties. Follow the prompts and continue to the Annualized Income Method, click the Yes button, and enter your information as requested.

If you decide this method is not helpful, you can decline to use it, and the form will be deleted.

Additional IRS Information:

• Tax Topics - Topic 306 Penalty for Underpayment of Estimated Tax
• Instructions for Form 2210

[SteamTrain]

Agree, the 2210AI "might" help

BUT

Depends on exactly when the RMD $$ were taken.

If you don't have withholding done, and IF your RMD was taken in the first quarter of the year, the 2210AI won't help, because the IRS expects you to cover the taxes with an estimated payment in the same quarter that the RMD $$ were removed.

Thus, if you only take your RMDs in the 4th Qtr...then the 4th Qtr estimate paid before 15 January could eliminate the penalty when the 2210AI is filled out, but only if fully, or mostly covers the taxes due.

Opinion:  The 2210AI is a pain to fill out, and requires meticulous monthly records for all your income types and deductions, withholding..etc.  I've done it once, and have avoided it ever since by either paying a small penalty (<$50) with a shoulder shrug...or upping withholding, or even paying a large 1st Qtr estimate to cover most situations for the year.

[fanfare]

See Form 2210 Line 10 where it calls for 25% per quarter when you use Option D.

each of the four quarterly expected amounts is subject to penalty if not large enough.

@Evetsh