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Originally Posted by Caymus
I have a question on withholding taxes from investment accounts. I assume you can have taxes withheld from 401K and regular IRA distributions. How about from regular brokerage accounts and mutual funds? If not, I assume you would account for that in estimated tax payments.
It also looks like taxes can also be withheld from SS payments.
This will be the first year that I will not be able to adjust my employer withholding to account for investments.
I would appreciate any advice (except see a tax/investment professional)  |
You essentially have three topics.
First, avoiding an IRS penalty for underpayment of taxes is tricky in particular cases if you are not familiar with the IRS requirements for tax payments and your income is changing a lot from year to year. It is tricky because you need to know how much the government wants and the timing to pay during each year to avoid an underpayment penalty. If you don’t have the knowledge or interest in learning, I suggest that you have a tax preparer help you. But seek help earlier in the year rather than the end of the year because it might be too late to avoid some penalty. For an overview of what IRS requires, see this link
Topic No. 306 Penalty for Underpayment of Estimated Tax | Internal Revenue Service
Second, whether your financial institution or other payor of funds to you can withhold taxes for you varies across entities. It’s hard to generalize too much except for Social Security and other government payors. You could ask each one or at least the ones who pay out the most to you whether they can withhold taxes on your behalf.
Lastly, if you don’t have enough taxes withheld by your payor to avoid a penalty, you can still avoid a penalty by paying IRS ‘estimated taxes’ along the way during each year. You get credit from IRS if you overpay your estimated taxes. Some people are clever enough not to pay too early to the government without a penalty but you must either be knowledgeable or lucky.