I had a one time windfall in December 2020. I expect this to result in a $10K tax liability. I plan to log onto the IRS/payments (1040 ES) and pay the IRS $10K to cover my expected tax . Is this all I need to do for now to avoid penalties?
Yes that should be ok.
If you do get a penalty on your tax return, You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.
It's under
Federal or Personal (for Home & Business Desktop)
Other Tax Situations
Additional Tax Payments
Underpayment Penalties - Click the Start or update button
If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form. If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column. Type 2210 in the search box and open the 2210 form. Check box C to let the IRS calculate it.
Yes that should be ok.
If you do get a penalty on your tax return, You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.
It's under
Federal or Personal (for Home & Business Desktop)
Other Tax Situations
Additional Tax Payments
Underpayment Penalties - Click the Start or update button
If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form. If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column. Type 2210 in the search box and open the 2210 form. Check box C to let the IRS calculate it.
the basic computation of underpayment penalties assumes income is earned evenly throughout the year so your tax liability is assumed to be equal for each quarter. this is the default. to avoid penalties you'll probably have to use the annualized installment method on form 2210
The 4th quarter payment is due by Jan 15, 2021.
But you may not need to pay it. There is no penalty due if either of these are true:
- 1. You expect to owe less than $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be more than the smaller of: 90% of the tax to be shown on your current year’s tax return, or 100% of the tax shown on your prior year’s tax return (110% if your previous year's adjusted gross income was more than $150,000). Paying 100% of the prior year tax liability is the usual “safe haven”.
If it is necessary to make a 4th quarter payment, then you will want to prepare form 2210 with your return (rather than letting the IRS do it), utilizing the "annualized method" to account for the 4th quarter windfall. Once you initiate form 2210, as described by VolvoGirl, the TurboTax interview will ask if you want to use the annualized method. You'll have to do some calculations.