Should I be paying estimated taxes?

[tzr916]

I've read through:

https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...

I've been filing with Turbo Tax software for many years, own one home in California so end up using standard deduction. Primary income from full time employment is W-2 (withholding), and secondary income started in 2022 that is 1099-NEC (no withholding).

For the first time in my life, in the 2022 tax year I owed $3000 which I paid in full April 2023. My 2023 tax year is looking to be the same situation, pay $3000 in April. Turbo Tax summary shows:

Total taxes owed = $9000

Total taxes paid (withholding + credits) = $6000

Taxes DUE = $3000

I've never paid estimated taxes (because the Turbo Tax software has never said that I need to), and I've never had any penalties or letters from the IRS. However, it seems like the article linked above is saying that I should be paying estimated taxes. Why doesn't the Turbo Tax software match up with their article? Am I just "flying under the radar" and risking the IRS knocking on my door? If that happens, how much of a penalty could there be?  $100 ? or $1000 ? or ?

[Cynthiad66]

TurboTax does recommend estimated payments if you have a balance due.  If you're at risk for an underpayment penalty next year, TurboTax automatically calculates quarterly estimated tax payments and prepares vouchers (Form 1040-ES) for you to print. You're not required to make estimated tax payments; we're just suggesting it based on the info in your return.

Below is how estimated payments are calculated:

Based on your 2023 tax info, we’ll use the lower of the following IRS-approved methods to calculate your estimated tax payments.

• 90% of your estimated 2024 taxes
• 100% of your actual 2023 taxes (110% if your adjusted gross income was higher than $150,000, or $75,000 if Married Filing Separately)

There are two additional IRS-approved methods available:

• 100% of your estimated 2024 taxes
• 66 2/3% of your estimated 2024 taxes (farmers and fishermen only)

If you’d like to use one of the additional methods, answer Yes to the question Do you want to adjust your income or deduction? on the Review Your Estimates for 2024 screen. Once you review your income and deductions, you’ll have the option to select from any of the four methods.  For additional information:  How Does TurboTax Calculate My Estimated Taxes

You pay your balance due by the due date of the return and that is probably why no penalties from the IRS.  It is better to pay the quarterly estimated taxes to avoid interest and penalties.  The penalty amounts are based on the amount due.

[Mike9241]

if 2024 will be the same as 2023, then yes you either need to increase your withholding or make estimated tax payments to avoid penalties.

 There will be no federal penalties  for 2024 for not paying in enough taxes during the year if withholding and

1. timely estimated tax payments equal or exceed 90% of your 2024 tax or
2. timely estimated tax payments equal or exceed 100% of your 2023 tax (110% if your 2023 adjusted gross income was more than $150K) or
3. the balance due after subtracting taxes withheld from 90% of your 2024 tax is less than $1,000 or
4. your total taxes are less than $1,000

state laws differ

as you can see unless you do something you would not meet any of the above exceptions for 2024. This is why TT is generating 2024 estimates. Rather than pay estimates you can increase your withholding, It's your choice. if later in 2024, you estimate that your taxes will be less than 2023 you can lower your withholding by filing a new w-4 with your employer or reduce or eliminate estimates for the rest of the year. However, doing so means you might not be safe from penalties should something occur that increases your 2024 liability.

FYI. in 2022 you owed about $3K and did nothing to reduce the amount owed for 2023. If you used Turbotax in 2022 then it will automatically generate a penalty calculation for 2023 because you meet none of the exceptions above. However, there may be some sort of exception if you suffered a declared national disaster in 2023

if you want to know the amount just complete your return for 2023. the penalty will be calculated automatically and show up on line 38 of the 1040. 

[tzr916]

Thank you.

I have run my 2023 return through Turbo Tax, line 38 estimated penalty = $70. I guess that is my penalty for 2022. So that $70 penalty just rolled into my amount DUE this April. And assuming no changes happen, my 2024 return would also just roll a $70 penalty into my amount due in 2025.

If this is the case, I don't see any benefit in giving the IRS my money any sooner than once a year. The difference is minimal compared to keeping it my savings account.

[JCSC]

Our 2023 said we maid a penalty.  where is the breakdown of our 2023 federal taxes we owe

[DaveF1006]

This is listed in Lines 16-24 in Form 1040 on your return. To view Form 1040 in Turbo Tax online, go to:

1. Log into your Turbo Tax Account
2. Go to Tax Tools
3. Tools
4. Select view Tax Summary
5. Look in the left Navigational pane of your return and select preview My 1040
6. Look on lines 16-24 and this will give you a breakdown on taxes that you owe.
7. Look on Line 38 for your Estimated Tax Penalty

If using the Desktop Program:

1. Open your program
2. Go to the Forms mode
3. Select Form 1040 and look on lines 16-24 to see a breakdown of your taxes.
4. Look on Line 38 for your Estimated Tax Penalty

@JCSC