Achieving Safe Harbor Through A Single Estimated Payment

Forum|Forum|6 years ago
March 26, 2020
1 reply
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Let’s assume that my day job will yield an equal amount of wage income (approx. $53,000) and federal taxes withheld (approx. $5,000) in 2020 as it did in 2019. I still had $2500 in taxes due in my 2019 return as a result of additional income through mutual fund dividends. My total tax liability in 2019 was $7,500 ($5000 + $2500).

I am certain that in 2020 my additional income will be significantly higher than last year and, as such, my 2020 taxes owed will greatly exceed $2500 in 2020.

Can I just pay one estimated tax payment in Q1 for $2,500 and avoid additional quarterly estimated tax payments for 2020 since I would be having 2020 taxes withheld from my paycheck (of at least $5,000) and this one 2020 estimated tax payment of $2,500 would result in having paid at least 100% of my prior year’s total tax liability? Would this accomplish “safe harbor “? Of course I would be making sure that I have enough money next April to fully pay what I owe, but I want to earn interest on this additional income and I would like to avoid the hassle of having to pay four quarterly payments that are really just estimates anyway. The key is I will pay the taxes due but I want to avoid any penalty.

Not A Product Question

pk_

Level 15

@timbukktoo , if the simple question is can a taxpayer whom is required to / should pay estimated taxes during the year ( in addition to with-holdings ), pay a onetime and not per quarter --- YES. This may avoid interest charges if the tax liability outpaces the required withholdings. Note that this applicable to both the Fed and the State.

Is this what you meaant ?

timbukktooAuthor

Level 3

Not sure based on how you phrased it.

timbukktooAuthor

Level 3

@timbukktoo , sory for the delay in responding to you. Don't understand the term "bump"

Ignoring that --- there are only four ways to avoid the penalty ( other then requesting abatement at the time of filing ), -- (1) Owe less than $1000 ( withheld/estimated vs actual liability ); (2) 90% of liability has been paid/withheld ; (3) 110% of the prior year tax liability equivalent has been withheld / paid and (4) total liability has been paid by the 15th of Jan OR paid and return filed by 31st. Jan of the following year.

That is what the referred material talks about except for a few ands/ifs/buts.

Hope this closes your query - I recognize this may not be what you are expecting but thems the facts. Sorry.

Thanks very much. Your link suggests "If the adjusted gross income shown on the return of the individual for the preceding taxable year beginning in any calendar year exceeds $150,000, clause (ii) of subparagraph (B) shall be applied by substituting “110 percent” for “100 percent”.

As for your #3, my AGI will not exceed $150,000, so I am going with the belief that the100% prior year tax liablilty paid amount applies to me vs. the 110% amount.