Annualized Adjusted Gross Income

[stardancer]

Near the end of the Federal Calculation, one is given the opportunity to Annualize one's income, if it came in unevenly throughout the year.  However, there is no worksheet to calculate this.  I have all the data in Quicken, but this requires, for example, that I figure out my income by quarter reducing it by amounts that were reinvested in retirement accounts.  I can find reports that show me all income but then I have to sort through each transaction to figure out if it counted as income or not.  Why is there no worksheet to help with this input?

[ReneeM7122]

The Annualized Income Method appears in the questions for form 2210, which is the estimated tax worksheet.

You can get there as follows:

1. Search for underpayment of taxes.
2. Select the Jump to link in the search results.
3. The Underpayment Penalties screen will display the penalty amount. Select Continue to review this section and make any needed adjustments.
   • Note: If you see No Underpayment Penalty, you either haven't entered your income and/or estimated tax payments yet, or you aren't subject to an underpayment penalty.

(Optional) Keep going, until you reach the Annualized Income Method screen.

[stardancer]

Thanks for that.  I didn't have any problem finding where Turbotax tells me to calculate my quarterly AGI.  On that screen, Turbotax tells me what my annual AGI is, but leaves it to me to put in the quarterly figures to come up with the Annualized AGI.  What would be helpful is for TT to spell out what is in the AGI number that is displayed.  For example, it could say Interest of xx, Dividends of xx, capital gains of xx, social security of xx, taxes of xx, etc.  I could then easily determine what went in each quarter.  Having only the single total number (which is comprised of both income and outgo) on a return as complex as mine doesn't help me much. 

[fanfare]

The computation is so complex I just gave up and accepted the original penalty amount.

If you make a mistake, what will IRS say ??

[jes269]

I am struggling with the same issue. To prove that I owe a smaller penalty (or that I do not owe one at all), I need to annualize my income, but after hours with a spreadsheet trying to figure out how TurboTax has calculated my AGI so that I can provide the cumulative AGI by period, I am at a loss. Is the only option really to pay a penalty I don't actually owe? TurboTax not showing its work here is very expensive for its customers and damaging to my experience.

[JotikaT2]

It depends.

The underpayment penalty is calculated if you do not have enough withheld in income taxes throughout the year as you earn your income. 

You can try to reduce your underpayment penalty by following the tip at the bottom of the link below if you have not already.  

Underpayment penalties

[jes269]

Thanks, but this suggestion isn't responsive to the issue here, which is that we are trying to annualize our income to reduce or even eliminate the penalty, as income was earned at the tail end of the year.

[gloriah5200]

The annualized income method is definitely more complex than the regular method.

Unfortunately, only you are the one who knows how much income and deductions apply to each month so you can compute each "period" on the 2210 annualized method worksheet.

The periods that IRS wants the annualized (AGI) income and then further down on the Schedule A1, the deductions (itemized or standard), SE Tax, withholding, etc. on, is as follows:

January - March 31

January - May 31

January - August 31

January - December 31

So once you have the amounts calculated for the first period, then add April and May to that for the 2nd period and then for the next period, add June, July and August amounts to that, and then for the last period, add September, October, November and December.

The easiest way is to write down each item of income and withholding and deductions for the year and then go through each one to determine if it was evenly throughout the year and if so allocate it that way on your scratch pad worksheet.  If it was not, then you must manually calculate how much to allocate to each month.  Then total each item per month (each income, each withholding, each deduction, etc.) and then calculate it for each of the "periods" IRS has set up in the worksheet.

Here is a link to the IRS Form 2210 so you can see how it is broken down:

IRS Form 2210

Here is a link to the IRS Instructions for Form 2210:

IRS Instructions for Form 2210 Regular and Annualized

[Edited 03/15/2021|12:04 pm pst]

[jes269]

Thank you. We may still be talking past each other, however. The issue is not "How does one annualize one's income" but rather "Can TurboTax show its work on how it calculated my AGI, because I'm not getting the same 1/1/2020-12/31/2020 AGI figure?"

[gloriah5200]

Here is a link to explain how to calculate the AGI to be used for the annualized method:

Annualized Income Quarterly AGI for TurboTax

[jes269 · Accepted solution]

Thank you.

I was FINALLY able to figure it out by examining the draft Form 1040 in my draft tax return. First, navigate to the Turbotax Print Center. Then, download your draft return. Finally, look at lines 1-11 to see how TurboTax is breaking down your AGI. This helped me determine what income was and was not being counted, plus what my adjustments were. Hallelujah!

[terry-n]

You're far from alone. There's a LOT of room for improvement in TurboTax's support for Form 2210 Schedule AI. It's true that TT doesn't have (all) the necessary info about the timing of various income and expense items, but that does not mean it has to plop as much of the calculation in the lap of the user as it does.

It could, for example, revisit each income and expense item/category that the user entered a value for for the whole year and, whereas before it asked for annual figures, now ask for figures by period. Then it would have everything necessary for the entire calculation. It could also take advantage of the date info that I suspect is included in what it already downloads from financial institutions for things like capital gains, dividends, interest, etc. If I used Quicken, I would be sorely disappointed to find that TT wouldn't even take advantage of the detailed timing info stored in its own sibling product.

The whole point of paying for a product like TurboTax is to avoid having to digest the IRS's publications and complete all the forms yourself. To the extent it doesn't do that, it defeats its purpose. The way it doesn't help annualize Social Security benefits at all is particularly awful given the relative complexity of calculating that one by hand — the taxable portion of it depends on your other income. Currently, if SS income was entered for the year, the annualization Q&A just gives the user an out-of-date reference to an IRS worksheet (that in turn draws on other worksheets), then asks for the per-period AGIs. (There's even a confusing bug in the screen that asks for them, described here.)

I really hope someone can get Form 2210 Schedule AI on the shortlist of areas of the product to fill out next. With the rise of the gig economy, more and more self-employed users are going to have need for that area of the program and as it stands it does not make for a good experience.

[terry-n]

[disregard]

[rwhitaker20]

My Federal Tax return was rejected by the IRS because my  2019 AGI doesn’t match with my 2020. I can’t seem to fix the problem.

[mesquitebean]

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@rwhitaker20 wrote:

My Federal Tax return was rejected by the IRS because my  2019 AGI doesn’t match with my 2020. I can’t seem to fix the problem.

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Be sure to use the 2019 AGI from the original return, not an amended one.

If it's a joint return, both spouses use the same total 2019 AGI--do not divide or otherwise allocate.

Did you file the 2019 return late in the year (such as mid-November 2020 or later), or was there an unusual delay in processing your 2019 return? And if so, did the IRS not finish processing your 2019 return prior to November 2020? In those cases one can try using a 2019 AGI of 0 (zero.)