underpayment penalty

frankt — Tue, 14 Jan 2020 23:17:27 GMT

Sold stocks in Sept & Oct. and paid estimated taxes in Q4. Did a ROTH conversion in Dec. and paid estimated taxes from outside the IRA account. Tax summary shows I will need to pay estimated penalty taxes for Fed and state taxes (even when I show excessive overpayment amount)?

Re: underpayment penalty

jtax — Tue, 14 Jan 2020 23:38:44 GMT

Congrats. Doing a Roth conversion and paying the tax with non-IRA money is one of the best financial moves you can make.

But this is one of the more confusing things about taxes.

What is probably happening is that the default calculation is working off an even income model. So you are required to pay roughly 1/4 of you annual taxes each quarter. In essence, by that method, your April, June, and Sept payments were very late.

You can fix that by going through the Annualized Income
Installment Method described on page 6+ of

https://www.irs.gov/pub/irs-pdf/i2210.pdf

[this seems to be the 2018 form instructions, the IRS hasn't updated it, but it will all apply except for the dates]

However that is extremely complicated and confusing. It involves something close to redoing your taxes for each period. Well, actually income and deductions totaled for 1/1-3/1, 1/1-5/31, 1/1-8/31 and 1/1-12/31.

In your case it is probably worth doing.

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underpayment penalty

Re: underpayment penalty