Estimated tax safe harbor. -- Tax penalty???

[TenOC]

Estimated tax safe harbor.

In December I converted a standard IRA into a Roth IRA. No income tax was deducted in this conversion. In early January, before January 15, I paid an estimated income tax so that my total estimated income tax plus income tax deductions for the year was a safe harbor amount – that is greater than my 2018 total income tax. I have entered the estimated taxes in the estimated tax form. The 1040 form shows the total taxes that is estimated plus deduction that I have paid.

Why is TurboTax calculating that I owe a little over hundred dollars in tax penalty?

[jtax]

That's a great question. The answer is subtle.

While you have paid enough estimated taxes, you probably didn't pay it when the "regular" calculation method says you should have. By default you must pay 1/4 of the total amount each quarter. You cannot wait until the 4th quarter and pay it all. If you do that the other quarters appear underpaid and you are charged interest by the day.

The solution is to not use the default method of computing required payments and dates, but rather to use the annualized income method.  However, that is very complicated. It involves figuring your income and deductions separately for each quarter (mostly).  Turbotax does support the Form 2210 Schedule AI that you need and will walk you through it. See this older post about how to go through that. It may not be worth it if the interest/penalty is small, but that is your call.

https://ttlc.intuit.com/community/retirement/discussion/my-tax-penalty-is-calculated-as-if-my-income...

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[DianeC958]

The penalty is calculated based on that you received the income evenly over the whole year.  You can change the information to tell the program that a larger amount of income came in during the last part of the year and your penalty will decrease.

To make changes to the penalty go to:

• Federal
• Uncommon Tax Situations
• Additional Tax Payments
• Underpayment Penalties

Link to more information about Underpayment Penalties

[halfdome35]

I am in the exact same situation, where I made a Roth conversion at the end of the year and now I owe a penalty.  It's to my understanding that as long as my quarterly estimated payments are 110% of my taxes from 2018, I would not have to pay a penalty?  Where do I enter my taxes from 2018 in order for the software to take this into account? This is my first year using turbotax

[jtax]

@halfdome35 TT should ask you. But if you miss it here is a previous answer telling you where to enter estimated taxes.

https://ttlc.intuit.com/community/tax-payments/help/where-do-i-enter-my-estimated-tax-payments/00/25...

do note that paying the safe-harbor amount alone is not enough. Those payments must be made evenly. I.e. you can't pay all in the last quarter. If you do pay evenly then you should not get a penalty even if you owe (on 4/15) a million dollars.