Questions about penalty for underpayment of quarterly taxes

[squidlady]

Am self-employed and pay quarterly federal and estate estimated taxes. My job is such that I NEVER EVER have any idea of how much money I will make in any particular month.

I am in TT (desktop version for Mac). This year I am getting a refund for both Federal and State,  but still have an underpayment penalty. I understand why (it's pay-as-you-go and if you underpay for one quarter, you can't make up for it totally by overpaying in the next quarter.)

From TT (dollar amounts below are fake but realistic):

Underpayment penalties

You have a penalty of $123 for underpayment of estimated taxes. Your refund was lowered and is now $4321. Do you want to see if you can reduce or eliminate the penalty?

If I say YES to that question, there are a series of screens I go through:

I do know how much income I earned in each quarter (and entered that into TT). The next screen is asking for "annualized adjusted gross income" - how am I supposed to be able to figure that out? Is there a way to do this??

Then it wants itemized deductions for each quarter - how can I even know that? Does IRS check this at all?

Then it wants QBI for each quarter - again - how can I calculate this?

Then net capital gains for each quarter?? I have no clue.

I have a feeling that I can't provide accurate information for most of this but just wanted to know if I'm understanding what TT and the IRS is asking here. 

After all of that,  at the end I get this from TT:

Note that Form 2210 won't be printed with the filing copy of your tax return. The IRS doesn't require its filing unless you're requesting a waiver, you're annualizing, you're treating your withholding as paid when actually withheld, or your filing status changed from or to married filing jointly between 2024 and 2025.

I did have a change in my filing status. For 2024 I filed married jointly. We got divorced in 2025 and I am filing single now. (TT knows this!) Do I have to generate and send a form 2210 myself? If so, how? 

If I say NO to that question, then I don't get the Form 2210 language at all. Does that mean - if I answer NO to the question then I do not need to worry about Form 2210? 

THank you for slogging through this, I appreciate it!

[baldietax]

if you work thru the Annualized Income (AI) method for Form 2210 you basically have to calculate a mini tax return for each quarter, so to calculate your quarterly AGI for example you have to replicate the income on your 1040 Lines 1-10 apportioning it by quarter, same with the capital gains and qualified dividends to get the right tax calcs.  I am not sure all the nuances of doing this for self-employment situation and how to handle QBI and deductions thru the annualization process.

It's generally a lot of work to go through this for 3 quarters (uneven - 3/31, 5/31, 8/31; and 12/31 is your full return) it's like doing 3 extra tax returns, so you may have to decide whether it's worthwhile to save $100 or so penalty.  You may not even eliminate it if the annualization and ES payments don't line up as intended.  One thing you can do is a mock up with rough quarterly estimates to see if it helps with the penalty, then refine it with more accurate numbers.

When you go through those questions you'll be asked at the end if you want to adopt the AI method.  This language at the end about not filing 2210... by default, Form 2210 is not filed in your return unless you are selecting one of the exceptions in Part 2 like the AI method.  IRS assesses your penalty independently, they know your ES payments and will do the default safe harbor and penalty calc on Form 2210 Part 1 the same way Turbotax does assuming no other tax adjustments for some reason.

To avoid this going forward, if your total income is steady or increasing from year-to-year you could pay fixed quarterly ES payments based on prior year tax then it won't matter about the timing of your income.  But with this method it could be an overpayment especially if your prior year AGI is > 150k for single filer then you need to pay ES based on 110% of prior year tax, instead of 90% of current year tax.  Turbotax by default will generate ES vouchers for 2026 based on 2025 tax, but you can work through other income estimates under Other Tax Situations / Form W4 and Estimated Taxes.

Check also the instructions for Form 22110 which may answer some of these questions how to go about the annualization.

[ReneV4]

Because your filing status changed from filing jointly to now filing single, Form 2210 is required so that the IRS can determine your specific share of last year's joint tax liability.

If you answer "No", the Form 2210 will still be generated for the filing status change, but not to request the waiver.

If you answer "Yes", choosing the Annualized Income Method is usually the best option for self-employed people with uncertain income month to month.

Although the IRS rarely audits specific breakdowns of quarterly amounts on your Form 2210, it will require "reasonable accuracy" when entering the information in the series of screens.

If you are getting a refund and the penalty amount is only $123, you will need to decide whether your time is worth the savings.

[squidlady]

Baldietax - 

Thank you so much for going through all of my questions and explaining about how the AI method works - for me is not even close to being worth $100 to try to figure all of that out. So I will not do so! Thank you again, I appreciate your explanation.

[squidlady]

Rene V4 -

Thank you for explaining about Form 2210. I will be answering NO and my time is not worth that small savings ($123 was a fake number but close enough) as long as TT will generate all of the forms I need to file - and from what I'm reading of your reply, it will. 

Choosing NO!!

Thank you again.