How accurate is the What-if worksheet for determining 4th quarter estimated tax payment?

[sandy4042]

I did a Roth conversion of a traditional IRA on 12/30.  I used the What-if worksheet (selecting 2020 rates) from my Turbotax 2019, desktop version, to play around with how much tax I would owe with various Roth conversion amounts. Can anyone verify that the worksheet is accurate enough for basing the 4th quarter estimated tax payment due Jan 15th?  I am reasonably sure that my input data is correct (i.e., income, estimated tax and withholding to date).

Alternatively, I was considering either buying TurboTax 2020 now and doing a mock tax return, or alternatively taking pen and paper in hand and calculating the tax from the Qualified Dividends and Capital Gain Tax Worksheet.

[MissMCJ]

It sounds like you know what you are doing, so there is a good chance that your estimates are good.  But I have seen people who are very off on the What-If.  It is a tool and there is no guarantee of accuracy. 

You can just do an online return in TurboTax without paying for anything.

[dmertz · Accepted solution]

If you give it correct inputs, you'll get accurate results.  The trick is providing the correct inputs.  What I did for 2020 is use 2019 TurboTax to prepare a simulated 2020 tax return, using overrides to correct for any errors due to values that are subject to cost-of-living changes and for any areas that are affected by changes to the tax code.  If you've done everything correctly, the result on this tax return will only be a bit off because TurboTax will be using 2019 tax tables.  You can then use the What-If Worksheet to copy column 1 to column 2 with column 2 set to use 2020 tax tables and you should get an accurate result for your 2020 tax liability.

I do this every year and the only errors in my tax-liability estimate that I see are due to incorrectly estimating particular items of income such as the amount of dividends that are qualified dividends and certain amounts that I don't know accurately until I receive several Schedules K-1 in March.

[sandy4042]

Thanks.  That makes sense.  I did something similar with the What-if, but didn't do a mock simulated return first.  Instead, I brought up my completed 2019 tax return and accessed the What-if form.  It automatically populated Column 1 with my 2019 tax return.  I then copied Column 1 to Column 2, and checked the box for "use 2020 rates" for Column 2.  Then I manually went into Column 2 entries and changed the data for estimated 2020.  The main one I was concentrating on was Line 15b "Taxable IRA Distribution" for my various Roth conversion amounts.  I'm kind of reluctant to do the simulated return as I remember the questions for IRA's got tedious with situations that didn't apply to me.

One more question, once you calculate your tax liability, do you add a cushion to it (i.e., % or flat amount) "just in case" to avoid a tax underpayment?  I know I will have to file the 2210 to show the 4th quarter income generated by the Roth conversion.

[MissMCJ]

I am impressed with your skill.  I would add a slight cushion, maybe 5%.  You can always adjust it down for a later payment if you feel you have overpaid.