Estimated Taxes and Penalty

[attitudeadjustment]

Turbotax is stating I should be paying a penalty because I paid my estimated tax in ONLY the 4th quarter.

I performed a ROTH conversion in December of a little over 100K; this was entered from the 1099-R I received.  I estimated my taxes based on that conversion and other accumulated income over the year.  I paid the estimated tax in early January 2022.  Had I NOT performed the conversion, I would not have had to pay any estimated tax.   I believe that the penalty is not applicable (the penalty is on all 4 Qs of 2021; I did not know if I was going to do the conversion until December 2021) and I should only pay the tax payment (447 less 64 penalty = 383).   Am I correct?

[rjs]

Neither TurboTax nor the IRS knows when you did the Roth conversion. The 1099-R does not have a date on it. You might be able to reduce or eliminate the penalty by using the Annualized Income Method in the Underpayment penalties section in TurboTax, which will adjust for the fact that the conversion was in December. To get there, in the Search box type "underpayment penalty" (without the quotes). Then click the link that says "Jump to underpayment penalty." After several screens you will come to a screen that says "Annualized Income Method" and asks whether you want to annualize your income. Click Yes and proceed through the process.

[HelenC12]

Yes, you may not owe a penalty since you paid the 4th quarter taxes in a timely manner. To remove the penalty, use the Annualized Income Method.  

• This method allows you to estimate your tax for each quarter based on your income and deductions rather than paying four equal installments. See the instructions below.

Note: You'll need your prior year tax return to answer the questions.

1. Sign in to TurboTax and open or continue your return.
2. Search for underpayment of taxes.
3. Select the Jump to link in the search results.
4. The Underpayment Penalties screen will display the penalty amount. Select Continue to review this section and make any needed adjustments.
   • Note: If you see No Underpayment Penalty, you either haven't entered your income and/or estimated tax payments yet, or you aren't subject to an underpayment penalty.

(Optional) Keep going, and when you get to the Annualized Income Method screen, answer Yes if you want to see if we can reduce the penalty.

[attitudeadjustment]

Thank you!