Solved - see next post
The bulk of my income happened in Dec as an IRA distribution, but every month there is interest income. Assume $300/mo plus a $96400 distribution in Dec for a total of 100k. I made one Q4 estimated tax overpayment in Dec at the same time as the distribution, but a late tax payment penalty for the earlier months was expected. I also had 30k of medical expenses, mostly in Q3,Q4 so I am itemizing.
In an effort to understand and reduce the penalty I did some what-if experiments using the step-by-step annualized income dialogs to change the timing of when I incurred AGI and SchA deductions. Before I even tried the annualized income dialogs, I was seeing maybe $400 of combined Fed+St penalty depending on when I planned to file.
The annualized income method prompts for AGI at the 3mo,5mo,8mo marks and shows the 12mo AGI ($100k) since it already has that. Similarly it prompts for the SchA deductions at the 3mo,5mo,8mo marks and shows the 12mo total ($30k) it already has.
When I used the annualized method the combined penalties were reduced to $100 and my refunds increased accordingly, but the final dialog in that method shows an already checked box "do not use the annualized method". I have to uncheck that box every time or I will lose my annualized entries (and tax savings). It makes no sense to have this as a default setting. Also the calcs from these dialogs do not seem to propagate immediately like the rest of TT.
The next thing I tried was to change the timing of the SchA deductions. It seemed to make no difference if the deductions were spread throughout each quarter, or occurred all in the first quarter or all in the last quarter. The penalty was unchanged. This does not seem correct. More deductions earlier in the year should make a difference.
Next I tried the same with the AGI. Again it made no difference if all of my income occurred throughout the year, or all in the last quarter. This can't possibly be correct. If this isn't a bug, then where is the penalty coming from?
