Underpayment Penalty

[1ABC]

I expect to receive a 2024 refund, but have also been assessed a modest penalty.  The penalty stems from me paying far more in estimated taxes for 3Q and 4Q 2024 than for 1Q and 2Q.  This has given the appearance that I am deliberately back-end loading my estimated tax payments.  But since most of my income is not predictable, this is not true.  I cannot know what my income will be until the end of any given Q.  As it turns out in 2024, I realized much less income in 1Q and 2Q than I did in 3Q and 4Q.  Therefore larger estimated tax payments for 3Q and 4Q is a given, expected outcome...and not a deliberate attempt to avoid paying most of my estimated taxes until late in the year.

So should:

I go ahead and file my taxes and request a penalty waiver in Form 2010, while also keeping an appointment with the IRS to discuss the matter in person, if necessary?

Or

Go to the appointment first, discuss the matter with the IRS, and then file my taxes?

[ThomasM125]

You should file the tax return first and prepare the Form 2210 to annualize your income for purposes of calculating the late payment of tax penalty. It would be hard for the IRS to do anything about it until the penalty is assessed. Once the payment is assessed, you can decide if you want to protest it by contacting the IRS.

You prepare Form 2210 in the Other Tax Situations menu in TurboTax, then Additional Tax Payments, then Underpayment Penalties.

[1ABC]

I did file my return about a week ago.  And I am going to, I think, cancel my appointment with the IRS.  I realized that I was burning up too much psychic energy about a very small underpayment penalty.  So if my waiver request is disapproved, it is really not a big deal.  

However, I remain concerned about the Schedule of Estimated Tax Payments for 2025.  The amount for each quarter, which is  based upon what I paid in 2024, is outrageous.  I was extremely fortunate in 2024, but I judge it impossible that I will have a like year in 2025...or anything even close.

Therefore:

When my 2025 income proves to be a much smaller amount, quarter after quarter, I intend to simply ignore the "recommended" estimated 2025 tax payment amount found in my 2024 return....and then pay the correct amount.

Will I still have to pay estimated taxes in 2025?  Undoubtedly.  But it will be an amount that is grounded in reality....and not some crazy number based on an exceptional 2024.....a year that will not be repeated in 2025.

1ABC

[dmertz]

If you were planning on preparing Schedule AI of Form 2210 to annualize income, the suggestion to file your tax return before preparing Schedule AI makes no sense.  Preparing and filing Schedule AI after filing your tax return requires you to amend your tax return to obtain a refund.

Schedule AI is what you must prepare and file to show that your income was not received evenly throughout the year.

[1ABC]

Prior to filing, I requested a waiver of the full amount of the underpayment penalty.  By doing so, and pending review of my waiver request made IAW Form 2210,

Part II, A, the entire penalty was restored to my 2024 refund.....which I received in about 7 days after the IRS accepted the return. I assume the above is standard procedure pending final adjudication of a waiver request. 

Of course, I expect my waiver request to be ultimately denied.  

Do you know how I will be notified?  Mail?  How long?

Many years ago a very similar situation occurred to me.  Then, my waiver request was approved without submitting Schedule AI.  It is obvious, after all, that investment income is very unpredictable.   Schedule AI was not necessary to prove the obvious.

Maybe I will get lucky?  Regardless, I am not going to prepare Schedule AI and file an amended return.  Not worth the effort.

Thanks for your advice.

1ABC

[1ABC]

My last message....."As part of my filing"....NOT.... "Prior to filing".

1ABC

[LindaS5247]

The IRS will send you a notice if you owe the Underpayment of Estimated Tax by Individuals Penalty. For more information, see Understanding Your IRS Notice or Letter.

You are not required to make estimated tax payments; TurboTax is just suggesting it based on the info in your return.

Click here for Can TurboTax calculate next year's federal estimated taxes?

Click here for Instructions for Form 2210 (2024).

Click here for Estimated Taxes: Common Questions.