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  • Lower 4th estimate tax payment

    2019 is the first year where all of my income is 1099. In order to satisfy the safe harbor rules, I'm paying 110% of last year's tax burden divided in equal estimated tax payments this year. I'll be making less in 2019 than I did in 2018. I was hoping to skip the 4th tax payment and file my taxes by the January 30th deadline, but that won't happen since one of the companies I work for doesn't send out their 1099 slips until mid-February.

    Basically, if I send in the same tax amount for the 4th payment, I'll be overpaying taxes by at least 30k, probably more. Can I send in a lower 4th estimated tax payment, or will that trigger some sort of penalty/audit?

  • #2
    You can send in.

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    • #3
      I would not overpay by 30k. I would not pay 110% if my tax liability was going to be less than last year. I would just shoot for about 95% of current year liability with the q4 payment.

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      • #4
        You can always pay 100% of this years liability.

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        • #5
          You only need to make the safe harbor payment if you underpay, to protect you from owing penalties. If, however, you have paid everything you owe, then there will be no penalty.

          Consider penciling out a good estimate of what your actual taxes will be for 2019, then simply pay the remaining amount of taxes owed for the 4th quarter, perhaps with a bit of a margin over what you estimate you will owe to be safe, and then there will be no penalty.

          Good luck!

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          • #6
            Originally posted by White.Beard.Doc View Post
            You only need to make the safe harbor payment if you underpay, to protect you from owing penalties. If, however, you have paid everything you owe, then there will be no penalty.
            to be clear, with estimated payments, timing does matter. You can pay 100% of your tax liability and still be subject to penalty if you pay it all late in the year.

            that’s an advantage of withholding from a paycheck, it’s always treated as is spread out through the year, even if the bulk of the withholding is late in the year

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            • #7
              Originally posted by jacoavlu View Post

              to be clear, with estimated payments, timing does matter. You can pay 100% of your tax liability and still be subject to penalty if you pay it all late in the year.
              Yes, I have this issue with the S corp that I own. The distributions come late in the year and I pay the estimated taxes on the distributions when they come, but they are back loaded. I may owe a penalty due to that fact.

              For pistolpete, it sounds like he overpaid his estimated taxes early in the year so he should be fine.

              One question, if I meet the safe harbor payment amount, will that preclude owing any penalties if the estimated taxes were paid later in the year?

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              • #8
                Instead of estimated payments you should just increase withholding from your S Corp wages.

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                • #9
                  Originally posted by White.Beard.Doc View Post
                  You only need to make the safe harbor payment if you underpay, to protect you from owing penalties. If, however, you have paid everything you owe, then there will be no penalty.

                  Consider penciling out a good estimate of what your actual taxes will be for 2019, then simply pay the remaining amount of taxes owed for the 4th quarter, perhaps with a bit of a margin over what you estimate you will owe to be safe, and then there will be no penalty.

                  Good luck!
                  OK, thanks guys! I read on Bogleheads that to meet the safe harbor requirements, one must send in equal estimate taxes, but I guess that's wrong. I'll just send in a lower payment in January.

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                  • #10
                    I have had ups and downs in income most of my career. I always just paid the 110% estimate realizing that I likely would not have to pay anything additional on 4/15 if the income was lower than the prior year. My taxes this year will be totally on investment income which is also hard to predict. This is lazy but it worked for me.

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                    • #11
                      Hatton ,
                      Realized investment income is fairly predictable. It takes alot of work if you have sizeable number of holdings. I think your lazy way is perfectly acceptable.

                      https://investornews.vanguard/upcomi...s-information/

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                      • Hatton
                        Hatton commented
                        Editing a comment
                        Tim I am talking about year end mutual fund dividends and interest.

                      • bean1970
                        bean1970 commented
                        Editing a comment
                        Hatton does your institution provide dividend income estimated for each month? Edge anyways there is a tab and it calculates the estimated monthly dividend/interest income for each month for 12 months. Obviously it won't know if you plan to divest anything to capital gains. if you click on the month it breaks it down since the taxation is different for dividends vs interest. I can use this tab to generate my quarterly tax payments for the entire year if i'm lazy vs actually calculating each quarter (though i most commonly resort to that).

                    • #12
                      Originally posted by jacoavlu View Post
                      Instead of estimated payments you should just increase withholding from your S Corp wages.
                      One clarification here - jacoavlu is not saying increase s-corp wages. Would not recommend a year-end, net-zero bonus, for example, unless you are significantly under-withheld, prob not even then. We have done this before for clients who are very penalty-averse but the result is that you are substituting add'l Medicare taxes for the penalty. The taxpayer should calculate both results and see which yields the lesser "penalty".

                      The above is not really meant for the OP, as it sounds like he w/b fine, but for the other s-corp owner-lurkers in the crowd.
                      Financial planning, investment management and CPA services for medical professionals | 270-247-6087

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                      • #13
                        @Hatton,
                        The estimates are probably available for your MF holdings. It is simply not available like price quotes.

                        Tim I am talking about year end mutual fund dividends and interest.
                        https://www.fidelity.com/mutual-fund...able=estimated
                        https://advisors.vanguard.com/insigh...sestimates2019




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                        • #14
                          Originally posted by jfoxcpacfp View Post

                          One clarification here - jacoavlu is not saying increase s-corp wages. Would not recommend a year-end, net-zero bonus, for example, unless you are significantly under-withheld, prob not even then. We have done this before for clients who are very penalty-averse but the result is that you are substituting add'l Medicare taxes for the penalty. The taxpayer should calculate both results and see which yields the lesser "penalty".

                          The above is not really meant for the OP, as it sounds like he w/b fine, but for the other s-corp owner-lurkers in the crowd.
                          Yes, I’m talking about increasing withholdings from your usual salary. I start looking at this at about end of Q3.

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