by surfinagin » Sat Dec 20, 2014 11:00 pm
Retired 12/13: 2014 employment income = 2013 bonus received 2/14 + one paycheck 12/14 after returned to work.
Taking advantage of low income year to do a Roth conversion, and never did estimated tax before.
Have read about Pub 505, Form 1040ES, Form 8606 Part II, and Form 2210, and know I need to do est state tax also.
Is this as simple as filling the 15% bracket with the Roth conversion, and on same day pay estimated tax on the difference between Fed tax withheld and tax on $73,800 ($10,163)? And follow same method for state tax?
I use TurboTax -will that walk me through at tax time and ensure correct forms submitted?
Have seen recommendations to provide an explanation in these situations to explain why estimated taxes weren't paid every quarter(?)
For a single payment like this, does one of the 3 payment methods work best? (by check, online, or by phone?)
Does the way I plan to do this make sense, and is this done using only Form 1040ES?
Thanks for your time
Surfin
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Re: Roth conversion -estimated tax Q
by LeeMKE » Sat Dec 20, 2014 11:29 pm
If I understand you correctly, you want to make a ROTH conversion from IRA for 2014.
Yes, it is simply filling up your tax bracket to calculate the amount you convert.
HOWEVER, you need to move fast. Conversion must take place before 12/31.
I am converting each year. I pay the estimated tax in April with my tax return. You could pay it immediately, but the earliest it would be due is January 31, when quarterly taxes are paid. I wait until April in case I need to recharacterize some of the conversion back to IRA.
The mightiest Oak is just a nut who stayed the course.
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Re: Roth conversion -estimated tax Q
by wx27 » Sun Dec 21, 2014 12:26 am
Estimated tax payment doesn't have to be done on the same day you do your Roth conversion, but you will want to make a substantial estimated tax payment by the due date for the relevant pseudo-quarter/payment period.
CODE: SELECT ALL
Payment Period Due Date
January 1 - March 31, 2014 April 15, 2014
April 1 - May 31, 2014 June 16, 2014
June 1 - August 31, 2014 September 15, 2014
September 1 - December 31, 2014 January 15, 2015*
*You do not have to make the payment due on January 15, 2015, if you file your 2014 tax return by February 2, 2015 and pay the entire balance due with your return.
When you have non-smooth income and withholdings/estimated tax payments, the IRS may complain about not getting estimated taxes each quarter, but that is avoided by filing Schedule AI which calculates what the minimum amount of withholding/estimated taxes needs to be for each of the four payment periods during the year. The form itself isn't too complicated, though you are essentially calculating your taxes four times for the year. You need to know your typical tax numbers (income/itemized deductions/etc) for 1/1-3/31, 1/1-5/31, 1/1-8/31, and the full year.
So if you do a conversion between 9/1-12/31 or have a lot of capital gains/dividend distributions in December, Schedule AI will show the IRS that you didn't need to pay the related estimated tax until that last payment period/4th estimated tax due date.
I typically only need to send one estimated tax payment, and that's the one due 1/15 of each year. I make sure I know all my numbers for each of those Schedule AI dates. I just mail them a check for the estimated tax amount with the Form 1040ES slip.
Oh, and you don't have to pay the full amount of your projected tax liability, just at least 90% of the actual tax liability in order to not owe an underpayment penalty when you pay the balance due when filing for the year.
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Re: Roth conversion -estimated tax Q
by Gill » Sun Dec 21, 2014 6:12 am
LeeMKE wrote:You could pay it immediately, but the earliest it would be due is January 31, when quarterly taxes are paid.
That is January 15th, not the 31st.
Gill
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Re: Roth conversion -estimated tax Q
by surfinagin » Sun Dec 21, 2014 8:13 am
wx27 wrote:When you have non-smooth income and withholdings/estimated tax payments, the IRS may complain about not getting estimated taxes each quarter, but that is avoided by filing Schedule AI which calculates what the minimum amount of withholding/estimated taxes needs to be for each of the four payment periods during the year. The form itself isn't too complicated, though you are essentially calculating your taxes four times for the year. You need to know your typical tax numbers (income/itemized deductions/etc) for 1/1-3/31, 1/1-5/31, 1/1-8/31, and the full year.
So if you do a conversion between 9/1-12/31 or have a lot of capital gains/dividend distributions in December, Schedule AI will show the IRS that you didn't need to pay the related estimated tax until that last payment period/4th estimated tax due date.
wx27- I'll be sure to file Schedule A1 when completing Form 2210 at tax time, and hope that TurboTax provides good directions.
When I pay using Form1040ES, is any payment method generally considered best? (by check, online, or by phone?)
-or just personal preference?
Thanks for your replies.
Surfin
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Re: Roth conversion -estimated tax Q
by 22twain » Sun Dec 21, 2014 9:52 am
If you live in a state with its own income tax, don't forget to send in an estimated tax payment for that, if necessary.
I expect to realize a fairly large long-term capital gain by selling some mutual funds before the end of this year. I won't have to pay federal tax on it because I'll stay in the 15% bracket, but I will have to pay 7% state tax, and send in an estimated tax payment by January 15.
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Re: Roth conversion -estimated tax Q
by earlyout » Sun Dec 21, 2014 9:54 am
Payment by check is fine.
When calculating your estimated tax payment don't forget to consider any income tax withheld on your bonus last spring or on you recent paycheck.
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Re: Roth conversion -estimated tax Q
by surfinagin » Sun Dec 21, 2014 10:23 am
Your answers provided a better understanding of the process/forms to pay estimated taxes -Fed.
I think I have all data accounted for to fill the 15% bracket and submit correct estimated tax amounts (fed/state).
Always easier to do it right the first time and be done with it, than have IRS Q's!
I'm in NY, if anyone has good info to know before filing Form IT-2105 to pay est NY tax for a 4th Q Roth conversion(?)
Thanks for your replies-
Surfin
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