OT: Estimated Income Tax

[Crutcher1]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

 

[USC75Grad]

I googled, "where is the best place to get tax advice" and got lots of information.

 

[lowcountry_cock13]

Seems like you need an accountant

 

[hahnenkampf]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

If you use TurboTax, the program will automatically calculate and print out the quarterly payment sheets for you. You just pay the amount it says to pay and mail it to the address on it. Easy Peasy.

 

[JGH 35]

I'm a CPA. There is a "safe Harbor" rule regarding estimated tax payments. If you pay in an amount equal to what your tax liability was last year, they cannot assess a penalty nor charge you interest as long as you pay the balance by the due date.

 

[bucketdad]

Welcome to the wonderful world of the self employed. Send them what you can.

 

[JGH 35]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

They do require estimated payments. Follow the Federal rules for the State and you should be ok. The maximum State tax rate is 7%. You also get an exclusion of $10k for retirement income.
If you get social security you can always have them withhold income tax as well if you're not sure as to the amount.

 

[hahnenkampf]

They do require estimated payments. Follow the Federal rules for the State and you should be ok. The maximum State tax rate is 7%. You also get an exclusion of $10k for retirement income.
If you get social security you can always have them withhold income tax as well if you're not sure as to the amount.

Great advice. I solved my problem by submitting a W-4 to increase the amount of tax withheld from my military pension.

 

[cocks rule]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

Use last years taxes as a baseline to pay this year’s estimated tax when required to pay quarterly. Rinse and repeat for next year and so on going forward. If you owe more you have untill April 15th or whatever the tax deadline is to square up.

 

[world famous 3rd base hecklers]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

If you're asking us for advice? Get a good tax lawyer, any advice from us will get you audited annually and anally...

 

[IH8FATBRAD]

I have a fair amount of K1 income that can vary. I stick a check in the mail at my effective rate, write my ss# on it, make a copy of it and send it on.

 

[chucktowncock]

If you're asking us for advice? Get a good tax lawyer, any advice from us will get you audited annually and anally...

Why would anyone need a tax attorney to pay estimated taxes or file a return?

 

[scbirdhunter]

You can download both a state & federal voucher straight off the internet.

 

[cocks rule]

Why would anyone need a tax attorney to pay estimated taxes or file a return?

Nobody, I’ve been doing my own taxes since I had my first job. My mom showed me how. It’s pretty simple however some people are totally lazy and can’t do anything for themselves.

 

[hahnenkampf]

Nobody, I’ve been doing my own taxes since I had my first job. My mom showed me how. It’s pretty simple however some people are totally lazy and can’t do anything for themselves.

Same here. The one year I had a tax guy do it, he said I owed $1500. Paid him $80 for his services. Went home and redid the entire return — got a $700 refund. In my 69 years of life that was the only time someone else did my tax return — and I never even submitted his work to the IRS.

 

[DrMickey]

I'm a CPA. There is a "safe Harbor" rule regarding estimated tax payments. If you pay in an amount equal to what your tax liability was last year, they cannot assess a penalty nor charge you interest as long as you pay the balance by the due date.

What JGH said. The “safe Harbor” amount is calculated from last years taxes. You won’t be penalized if you pay that much in. Even if you make a lot more money this year and owe a higher final tax. If you make a lot less money, an account can help you figure out a lower reasonable amount to pay, because of your lower total tax the next year. But you risk penalties if the calculations are wrong. The best bet is to pay the safe Harbor amount (if you can), and then you won’t have to sweat the penalties.

 

[JGH 35]

Nobody, I’ve been doing my own taxes since I had my first job. My mom showed me how. It’s pretty simple however some people are totally lazy and can’t do anything for themselves.

If you have a relatively simple tax return with mostly just w-2 income and use the standard deduction most people could do it themselves. However, if the return is more complex with self employment income, K-1 income from partnerships, investments, capital gains, etc. it becomes a totally different situation. I once went to a tax seminar where the presenter, who was a tax expert, began the seminar by saying there is no way he could prepare a reasonably complex tax return by hand from scratch. He said he must rely heavily on good tax software. The tax code with regulations has become unreasonably complicated and tedious. Actually, it has gotten completely out of hand, and Congress along with the IRS make it more so every year.

 

[ToddFlanders]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

In my experience the penalties are very small - a couple hundred bucks if you miscalculate. And that's a miscalculation on income much higher than living off of investments (unless you're Bezos' dad - but you'd probably have an accountant if that were the case).

 

[IH8FATBRAD]

What GHC said. I could never do my return, but as long as I'm tossing them money as far as estimates..They leave me alone. I have learned that you can probably get away with cheating the IRS, but why..? Constantly looking over your shoulder. Eff that...Pay your taxes and think of much of it as donations to the poor.

 

[cocks rule]

If you have a relatively simple tax return with mostly just w-2 income and use the standard deduction most people could do it themselves. However, if the return is more complex with self employment income, K-1 income from partnerships, investments, capital gains, etc. it becomes a totally different situation. I once went to a tax seminar where the presenter, who was a tax expert, began the seminar by saying there is no way he could prepare a reasonably complex tax return by hand from scratch. He said he must rely heavily on good tax software. The tax code with regulations has become unreasonably complicated and tedious. Actually, it has gotten completely out of hand, and Congress along with the IRS make it more so every year.

If your making hundreds of thousands every year your smart enough to let a professional handle it but for most of us it’s really simple. Fire up tax hawk punch in the numbers and let it do it’s thing for $12.95

 

[BorisSutherland]

These are the rules, mate, and you can't avoid them. I will suggest you pay the taxes as soon as possible. Otherwise, the tax percentage can increase significantly. By the way, I recently found a guide that you might also find helpful. Here it is https://jpg2pdfconverter.com/blog/how-to-fill-out-a-1040-form-ultimate-guide. So I hope, after reading my message and the guide that I've shared, you will understand the importance of paying the taxes, and you will listen to my advice. In case there is something else I can help you with, feel free to text me.

 

[Ratheolcoach]

I retired last year and it looks like I will be required to pay estimated income tax this year due to no earned income tax withholding. This is new to me and find very little helpful info on-line about it. My understanding is that if I have a tax liability of $1,000 or more federal tax at the end of the year, then I am subject to penalties. To avoid penalties, I am supposed to pay 90% of my taxes in quarterly payments.
The question is, how do I do this? About 1/3 of my income will be coming from investments, but I have no idea what kind of money my investments will bring in. The past few years, things have gone well, but who knows when the "crash" might occur. I could make 40K or I could lose 20K. How can I predict 90% of a number that I don't know? Also, does the state (SC) have the same estimated tax requirement?
Does anyone know a good place to get basic tax information for retirees? This is not something that was ever discussed in the few pre-retirement seminars I have attended.
Any information would be helpful - Thanks

I do this for a living. You need to hire a financial advisor and a tax professional. Let them tell you what to do and sit on a beach somewhere and drink cold drinks.

 

[76gintcock]

I'm a CPA. There is a "safe Harbor" rule regarding estimated tax payments. If you pay in an amount equal to what your tax liability was last year, they cannot assess a penalty nor charge you interest as long as you pay the balance by the due date.

Thanks for this. I'm on a salary, but I have significant investment income as well. I limit withholding exemptions to avoid a year end tax bill. I also pay quarterly estimates to both the IRS and the SCDOR. I base estimates on previous year's total tax bill. Because the investment income can vary, I'm never sure exactly how things will turn out. But if you overpay estimates you will get the overpayment back as a refund.

To the OP. The IRS has good estimate calculators online. Do a little bit of research.