As trustee of my brother's Trust, I paid myself a trustee service fee for 2016. The payment was made on November 2, 2016. I did not know until November 1 whether the Trust would be able to pay my fee in 2016. The income will be reported on Line 21 (other income) on my husband's and my joint tax return. Our tax liability for 2016 will exceed $3000. I instructed my financial advisor to withhold additional funds to cover the tax on the service fee as part of my 401(k) required minimum distribution which is being taken at this time.
Thank you. My concern is the potential for a penalty for not paying estimated tax on the service fee. How does the IRS know the money was received during the 4th quarter - or does it matter?
That is the beauty of having it taken via the RMD ... that withholding is considered to be taken evenly throughout the tax year just like W-2 withholding so it doesn't matter.
See the form 2210 instructions ... page 4 for line 19 ...
"For withheld federal income tax and excess social security or
tier 1 railroad retirement tax (RRTA), you are considered to have
paid one-fourth of these amounts on each payment due date
unless you can show otherwise. You will find these amounts on
Form 1040, lines 64 and 71;"
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i2210.pdf">https://www.irs.gov/pub/irs-pdf/i2210.pdf</a>