My wife received a distribution from an estate that shows up on a 2022 Schedule K-1 (which we just received last week). The estate financials were finalized in 2022, but the cash disbursement did not come to my wife until 2023. I am self-employed and we file jointly. The amount is showing up in our AGI and is significantly reducing my qualified business income deduction. Since I also pay quarterly estimated taxes, I am now being penalized for underpayment in 2022 for federal and state. This does not seem right. I'm just looking for some insight on this!
a) You should be able to use the annualized income installment method since you received this payment at the end of the year (actually after the end of the 2022 tax year).
See https://www.irs.gov/pub/irs-pdf/i2210.pdf
b) You should not lose your QBI deduction (refer to your 1040 - Line 13), but the increased income from the K-1 will also increase your AGI and taxable income.
@cweathers wrote:
I'm just looking for some insight on this!
What type of insight did you have in mind?
If the K-1 has the tax year "2022" printed on it and the ending date (below the year) does not have a date in the year 2023, then you have to report the K-1 on your 2022 federal income tax return (despite the fact that you did not receive the cash disbursement until 2023).
Thank you. Specifically, I was wondering:
a) if we do not have knowledge of amount to be received from the estate in 2022, how would I know how much more estimated tax is due? We now have underpayment penalties.
b) Should an estate disbursement count alongside business income (to me, they are unrelated)? We basically lost our qualified business income deduction. I assume the TT software knows where these items go and how it counts, but just making sure that is how others see it/handle it.
a) You should be able to use the annualized income installment method since you received this payment at the end of the year (actually after the end of the 2022 tax year).
See https://www.irs.gov/pub/irs-pdf/i2210.pdf
b) You should not lose your QBI deduction (refer to your 1040 - Line 13), but the increased income from the K-1 will also increase your AGI and taxable income.