2022 tax year do I need to pay estimated taxes or just increase my W4?

[dalibella]

Hi,

I am confused regarding paying estimated taxes or just increasing deductions on W4.  The IRS site talks about going by 2021 tax return to figure it out.

The problem is that last year I sold my property so I reported an abnormally high income.  I paid all the required taxes and no fines as in all past years I received refunds for overpayment.

In 2022 I will have to report my regular 1099-R retirement income (I am over 65)  plus interest accrued on the profit from the property sale.  I am trying to figure out what the federal and state taxes will be so to increase the W4 deductions accordingly and cover the taxes.

Will that be ok to avoid penalties? And if so, what if I realize I did not deduct enough, could I then make an extra payment ?  Could I use the last quarterly payment form to do that? When would the deadline for the last payment be?  I am just speculating on different scenarios here...

I approximately figured that the total gross income will be around 75,000. Using one calculator online I learned that my federal tax should be a bit over 8000 and for the state, California,  should be around 4000. Does this sound more or less correct?

Further, that last year for the first time I did not use TurboTax as I was not comfortable with figuring out what to do with the sale of the property.

Thank you very much for the help.

Dali

[Mike9241]

you can use this Turbotax site to estimate your 2022 taxes.  then add some cushion

https://turbotax.intuit.com/lp/ppc/2541?&srqs=null&cid=ppc_msn_nb_stan_all_na_tax-calculator_ty21-bu... 

as for federal tax law, there will be no penalties if withholding and timely estimated tax payments (did you miss the 4/18 1st estimated payment date) are

90% of 2022 taxes

or 100% of 2021 taxes (110% if 2021 adjusted gross income was more than $150,000

state tax laws vary if you have a state income tax

[dalibella]

Hello and thanks for answering,

Two months back I increased my W4 deductions for both federal and State taxes.  I have never done estimated payments before.  So, if the deductions I have made cover the taxes for the year 2022 (at least 90% of the amount that is) then there should be no penalty.

The tax due should be paid and it does not matter if it is done with estimated payments or via W4. Am I correct? I do not have a business, this is just a consequence of the profit from the sale of my home.  For this reason, I could not pay 100% of 2021 taxes because they were abnormally high for me.

If by some chance later on I realize that I underpaid, then could I make a lump sum payment before the end of the year? would it have to be on the estimated tax form and would I have to make the payment on a specific date?

I thank you for your help. Kindness is always rewarded.

ciao

dali

[dalibella]

Hello and thanks for answering,

I did not make an estimated payment as two months ago I went to my pension's website and changed the W4 increasing both federal and state deductions.  What I am unsure of is if the amount will be enough.

Just to be clear,(I never needed to make estimated payments before) if by the end of the year I have contributed via W4 deductions enough taxes for my income, then I would be ok, right?

Also, if in some way I find that I did not pay quite enough, can I make an extra payment before the end of the year? Or when would I have to make it?

As far as deducting 100% of 2021, that would be impossible as I sold my home and I had to pay way more than ever. For 2022 as long as the deductions are at least 90% of taxes due then there should be no penalty (if my taxes come out to be 8000 dollars then I could have been 800 dollars short and that would be ok).

I will try the estimate tool you suggested.

Thanks again for the help.

Dali

[dalibella]

Hello,

I was wondering if you could be so kind to look at my further explanation and reply if possible.

Thank you very much.

Dali

[bosso3]

Hello and thank you for the details you provided.  Details help solve problems.

1)  "In most cases, you must pay estimated tax for 2022 if both
of the following apply.
1. You expect to owe at least $1,000 in tax for 2022, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2022 tax return,
or
b. 100% of the tax shown on your 2021 tax return.  Your 2021 tax return must cover all 12 months."

Source:  https://www.irs.gov/pub/irs-pdf/f1040es.pdf

2)  The IRS expects to be paid the taxes due in the quarter the income is earned.  Otherwise, they may charge you interest.  So, the idea of making one large estimated tax payment in Q4, is possible, but you may get charged interest.

3)  Changing your withholding Form W-4 is a good thing to do.  You can use the following IRS tool to estimate your W-4 withholdings.

For Federal Taxes:  https://www.irs.gov/individuals/tax-withholding-estimator 

For California, it does not seem quite as detailed or elegant, but here is what I found online.  Note, I am not an expert on CA:  https://www.cdtfa.ca.gov/services/ewotcalc.html 

4)  I suggest that you check your withholding vs your income now, and again before each quarterly estimated tax payment is due.  The estimated tax due dates are

1st payment . . . . . . . . . . . . . . . . . April 18, 2022
2nd payment . . . . . . . . . . . . . . . . June 15, 2022
3rd payment . . . . . . . . . . . . . . . . . Sept. 15, 2022
4th payment . . . . . . . . . . . . . . . . . Jan. 17, 2023

This link discusses estimated taxes and how to determine your estimated taxes: 

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

You can make payments by submitting the paper form 1040-ES with your payment via USPS, or you can use review other payment options here:  https://www.irs.gov/payments

**Say "Thanks" by clicking the thumb icon in a post