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.
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.
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.
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.
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.