[Bill14564]

Originally Posted by retiredguy123

For most taxpayers, your estimated payments need to equal or exceed the amount of the total tax paid in the previous year. The total tax is shown on Line 24 of the 2021 tax return. You divide that number by 4 and make that payment 4 times during the next year. For some higher income taxpayers, the formula is a little different. But, Turbotax calculates the amounts either way. So, even if you have a huge income increase in 2022, you still will not owe a tax penalty. I have been doing it that way for over 30 years, and never owed a tax penalty.

It looks like the 1040 and 2210 instructions do not agree. But, not a CPA or tax attorney so don't want to argue the point.

[retiredguy123]

Originally Posted by Bill14564

It looks like the 1040 and 2210 instructions do not agree. But, not a CPA or tax attorney so don't want to argue the point.

I was referring to the following excerpt from the Form 2210 instructions:

"In general, you may owe the penalty for 2021 if the total of your
withholding and timely estimated tax payments didn't equal at least the
smaller of:
1. 90% of your 2021 tax, or
2. 100% of your 2020 tax. Your 2020 tax return must cover a
12-month period."

So, if you comply with item 2, you will not owe a penalty. I always pay 100 percent of the prior year tax and never owe a penalty. Note that higher income individuals may need to pay more.

[mkjelenbaas]

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)

When you talked with a tax professional what did they say?

[spinner1001]

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.

[Foxmd]

I have Fidelity withhold 30% on my RMDs.

[retiredguy123]

Obviously, if withholding payments are mandatory, you don't have a choice. But, I don't see any advantage to setting up voluntary withholdings. Plan to make 4 estimated payments during the year, and subtract the mandatory withholding payments from the estimated payment amounts. You can review your income at the end of the year, and adjust the last estimated payment, which is due on January 15, to avoid or minimize any tax penalty. If in doubt, it is better to make larger estimated payments early in the year to avoid a penalty.

[Caymus]

Thanks for the replies. This will be a transitional year for me. For the next few years, I am currently planning to take enough distributions to keep my AGI just under the Medicare IRMMA level to take advantage of relativity low tax rates.
That will not be possible when I reach the RMD age.

On a side note, I have been looking for advisors for a while and have been mainly unimpressed. But I will keep looking.

[retiredguy123]

Originally Posted by Caymus

Thanks for the replies. This will be a transitional year for me. For the next few years, I am currently planning to take enough distributions to keep my AGI just under the Medicare IRMMA level to take advantage of relativity low tax rates.
That will not be possible when I reach the RMD age.

On a side note, I have been looking for advisors for a while and have been mainly unimpressed. But I will keep looking.

I would suggest Vanguard or Fidelity. You may want to visit the Fidelity office in Lake Sumter to see if they can meet your needs without paying any high fees or commissions.

[bob47]

If you pay the tax when the income is taken, so for a minimum required distribution which I usually take in late December, all the tax is paid to the government at the end of the year, is that a problem?

[retiredguy123]

Originally Posted by bob47

If you pay the tax when the income is taken, so for a minimum required distribution which I usually take in late December, all the tax is paid to the government at the end of the year, is that a problem?

It depends. If the RMD raises your tax bracket, it could affect the tax rate for other income received early in the year.

[MandoMan]

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)

Everything I withdraw from my retirement account is taxed 20% before it reaches my bank account. That’s plenty. However, I also had to kick back $10,000 from my Social Security income because I had too much other income, and to pay that I had to take out more money from my retirement account—plus 20%. And that will increase the kick back next year.

[retiredguy123]

Originally Posted by MandoMan

Everything I withdraw from my retirement account is taxed 20% before it reaches my bank account. That’s plenty. However, I also had to kick back $10,000 from my Social Security income because I had too much other income, and to pay that I had to take out more money from my retirement account—plus 20%. And that will increase the kick back next year.

I think you can waive the withholding tax from most retirement accounts. I would ask the account custodian about doing that.

[FredJacobs]

I have been preparing taxes for a very long time and, up to last year, have been a site manager with the AARP's Tax-Aide program.

Regarding penalties - The IRS wants to receive 90% of your tax due before you submit your return. There are 2 exceptions - the tax due is less than $1,000 or the tax due is greater than the previous year.

Regarding Withholding - Yes, a simple phone call to Social Security can start withholding from your monthly payments. You can give them a dollar amount or a percentage to deduct. These deductions are Withholding not Estimated Payments. The total annual withholding will appear on Form 1099-SSA.

For Qualified Retirement Accounts - IRA, 403(B), 401(k), Pensions, etc. the company is required to deduct withholding unless you direct them not to. You can specify an amount or a percentage. The same is true for Non-Qualified Accounts - Annuities.

For Capital Gains and Dividends - It is not recommended that withholding be taken every time you have a Capital Gain. There are two reasons for this. First, Capital Gains and Dividends get a favorable tax rate and the brokerage cannot determine what your particular rate would be - some of your gain or dividends may not be taxed at all. Second, why take withholding when you may have a Capital loss to offset any gain.

For most people who have a large tax due when they file, the very first thing to do is to review every 1099-R to make sure there is an entry in Box 4. If so, is it between 10% and 15% of the amount shown in Box 2a? If not, call the company and increase the withholding. Then, use the Estimated Tax Worksheet to calculate what your tax might be for the following year. Remember to exclude events that are you unique to the current year - you had to surrender an annuity or an IRA for medical expenses, etc.

Hope this helps.

[Gac57]

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.

[retiredguy123]

Originally Posted by Gac57

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.

When you sell a stock for a higher price than you paid for it, you generate taxable income. If it was held for less than a year, the gain would be taxed as ordinary income. It sounds like you may be creating a complicated gain and loss paperwork exercise on your tax return.