Quote:
Originally Posted by Laker14
Managing the estimated tax due is a bit complicated. I feel it's to my advantage to make the conversion in December, so I can keep the money I will use to pay the taxes in my possession as long as possible. There are some forms you have to fill out, and fill out correctly, in order to avoid the penalty consequences of not having made the estimated tax payments quarterly, as you would if your income was steady throughout the year.
From what I can glean reading the IRS instructions, you can pay your estimated taxes as you receive the income, but you have to report it a certain way. I think I understand it, but I'm not sure I understand it. Especially for the first year doing this, I think having a tax pro guide me through it might be money well spent.
Also, it's not just about how it affects your taxable income, you have to be aware of how it affects your IRRMA thresholds.
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I use the prior year tax rule to pay an equal amount of estimated tax every quarter. It makes no difference when I receive income during the year. There is no penalty due. And, the income tax due on any IRA withdrawals or conversions are always due on April 15 of the next year, regardless of when you received the income. So, you can receive the income in January or December of the prior year, but the same tax amount is due on April 15 of the next year.
Yes, if you don't use the prior year tax rule, you could owe a small penalty if you don't adjust the estimated quarterly payments.