More quarterly estimate questions

[COEE]

Shit, shit, shit - forgot to file my quarterly estimates again this 'quarter'.  I've procrastinated doing my bills this month and missed my reminder.  My tax situation is really confusing, but here it goes...

The facts:
* I've paid quarterly estimates of about $750 for the last few years. 
* My wife has a S-corp and brings home a W-2 and a Schedule K(?) each year.  Her distribution this year have only been $1600 everything else has been W-2.
* I did have a W-2 gig, but was laid off 5/1
* As of today, I expect our income to drop about 35% this year after I factor in unemployment income.

Questions:
* I know that as long as I pay $1 over what I paid in taxes last year in taxes this year that I'm in the clear.  How does this change if my income goes down?
* My wife has very little distribution income - do I still need to do quarterly estimates?
* What happens since I'm late on my quarterly estimate payment?

God I suck at this.  I'd typically just pay the $750 and move on with my life - but without a job - that $750 can go a long way.

I did locate this and will work on filling out the form - but my God it's complicated.  https://www.irs.gov/pub/irs-pdf/f1040es.pdf

[seattlecyclone]

Quote from IRS site:

Generally, you won't have to pay a penalty for 2016 if any of the following apply.

• The total of your withholding and estimated tax payments was at least as much as your 2015 tax (or 110% of your 2015 tax if your AGI was more than $150,000, $75,000 if your 2016 filing status is married filing separately) and you paid all required estimated tax payments on time;
• The tax balance due on your 2016 return is no more than 10% of your total 2016 tax, and you paid all required estimated tax payments on time;
• Your total 2016 tax minus your withholding and refundable credits is less than $1,000;
• You didn't have a tax liability for 2015 and your 2015 tax year was 12 months; or
• You didn't have any withholding taxes and your current year tax less any household employment taxes is less than $1,000.

Note that the first two safe harbors (100-110% of last year's taxes or 90% of this year's taxes) require you to pay your estimated taxes on time. If you don't, you may owe a penalty.

[COEE]

So I filled out that form to the best of my ability - as to how I would have seen it when the first payment was due in April (forgot to pay it as well thinking I didn't have to because I just paid my taxes).  Turns out that based on my status at that time, that I would not have had to pay quarterly taxes because my job taxes would have been more than adequate to meet the 90% minimum (which would have been my case, because my taxes would have probably gone down due to finally maxing out my contributions).

So - I think I'm in the clear to not pay quarterly taxes the rest of the year.

But a couple questions to make sure:
* Do I have to redo that form if my employment status changes?
* Also - since my wife has an s-corp - I'm not sure that she pay 'self-employment' taxes that the form describes since her company pays 1/2 FICA and she pays the other half through payroll - right?  AKA: Should I put anything in on line 11?  A similar line on our 1040 was blank for 2016.
* I think I just need to keep this form for my records - right?

[MDM]

If you make any of the safe harbors through withholding alone, there is no need to pay estimated tax at all.

[Much Fishing to Do]

Isn't the "penalty" basically paying their current interest rate (like 4% now?) on the days past the estimated due date?  When I had a small amount of estimated tax I was supposed to pay I just ignored it and just paid annually at tax time with the penalty.  Wasn't worth bothering with quarterly.  So if "borrowing" money at 4% sounds like a good deal to you then there's really no loss (this is the same reason a lot of people don't pay down their mortgage, they say their money is worth more than 4% to them.  BUt its been a while, maybe I'm missing something, that makes not paying estimates a bigger deal.

[sokoloff]

I try to get my withholding and estimated taxes roughly right, but as Strick suggests, the interest rate is very reasonable, so it's not worth spending tons of agony or CPA time on it. Just get it close enough to avoid the punitive type of penalties and pay the interest-rate type of penalties as they come up.

[COEE]

Thanks for the input.

The 4% is reasonable, I suppose.  Especially when I don't have a lot of money coming in.  Thanks for the information.  I *think* I'll hit the safe harbors... but if not - 4% won't be bad at all.

It sounds like I should probably redo the numbers based on my current known situation to make sure I'm still going to hit the safe harbors.

[MDM]

Isn't the "penalty" basically paying their current interest rate (like 4% now?) on the days past the estimated due date?  When I had a small amount of estimated tax I was supposed to pay I just ignored it and just paid annually at tax time with the penalty.  Wasn't worth bothering with quarterly.  So if "borrowing" money at 4% sounds like a good deal to you then there's really no loss (this is the same reason a lot of people don't pay down their mortgage, they say their money is worth more than 4% to them.  BUt its been a while, maybe I'm missing something, that makes not paying estimates a bigger deal.

There is both a failure-to-pay penalty plus interest on the unpaid amount.  See Tax Topics - Topic 653 IRS Notices and Bills, Penalties, and Interest Charges.

Yes, the interest rate is currently 4%/yr.  But the penalty is 6%/yr (aka 0.5%/mo), so the total charge is 10%/yr.  Better to pay the estimated tax.  Perhaps better yet to pay via withholding.

[COEE]

So I filled out form 1040es and found that I don't need to send quarterly estimates for any reason.  I've paid in enough through my company withholding already to keep me in the clear in every scenario except one.

If my wife brings home a large distribution (10k+) at the end of the year then it will throw things off.  But my dad says there's a form to fill out that will show that it was a sudden payment at the end of the year (Anyone know what form he's referring to?).  And it would get me out of quarterly taxes on that amount received in December.  My wife 'hopes' to pay a distribution around Christmas like this, but she's very non-committal at this point of the year.  Even if she does receive this, I could put it toward our IRA's (that's what I'm thinking right now) and cancel out the income all together.  She very well could decide to keep that money in the company as an emergency fund.

[MDM]

But my dad says there's a form to fill out that will show that it was a sudden payment at the end of the year (Anyone know what form he's referring to?).

Form 2210, Annualized Income Installment Method.

[respond2u]

But my dad says there's a form to fill out that will show that it was a sudden payment at the end of the year (Anyone know what form he's referring to?).

Form 2210, Annualized Income Installment Method.

TurboTax will take you here if your payments aren't even and you tell it your income wasn't either. I assume other tax prep software will as well.

[Much Fishing to Do]

Isn't the "penalty" basically paying their current interest rate (like 4% now?) on the days past the estimated due date?  When I had a small amount of estimated tax I was supposed to pay I just ignored it and just paid annually at tax time with the penalty.  Wasn't worth bothering with quarterly.  So if "borrowing" money at 4% sounds like a good deal to you then there's really no loss (this is the same reason a lot of people don't pay down their mortgage, they say their money is worth more than 4% to them.  BUt its been a while, maybe I'm missing something, that makes not paying estimates a bigger deal.

There is both a failure-to-pay penalty plus interest on the unpaid amount.  See Tax Topics - Topic 653 IRS Notices and Bills, Penalties, and Interest Charges.

Yes, the interest rate is currently 4%/yr.  But the penalty is 6%/yr (aka 0.5%/mo), so the total charge is 10%/yr.  Better to pay the estimated tax.  Perhaps better yet to pay via withholding.

OK, thanks.  I guess I'm reading all of that wrong.  I thought the failure to pay penalty was only for not making the annual one due april 15.  I guess there's a lot of bad information out there i'm reading.

[triangle]

So I filled out form 1040es and found that I don't need to send quarterly estimates for any reason.  I've paid in enough through my company withholding already to keep me in the clear in every scenario except one.

If my wife brings home a large distribution (10k+) at the end of the year then it will throw things off.  But my dad says there's a form to fill out that will show that it was a sudden payment at the end of the year (Anyone know what form he's referring to?).  And it would get me out of quarterly taxes on that amount received in December.  My wife 'hopes' to pay a distribution around Christmas like this, but she's very non-committal at this point of the year.  Even if she does receive this, I could put it toward our IRA's (that's what I'm thinking right now) and cancel out the income all together.  She very well could decide to keep that money in the company as an emergency fund.

I do not know the specific form your dad may be referring to, though I expect that Turbotax or similar software will generate one. This will require you to keep detailed records of when you made any ES payments and how your income was received throughout the year. I made on-time quarterly ES tax payments last year but had some unearned income near year end which caused me to underpay and owe a small penalty. I believe I could have reduced the penalty by detailing the income quarter-by-quarter as well as when taxes were paid but did not want to take the extra time and effort to document.

If your underpayment will only be triggered because of a larger payment in December, I would consider contacting your employer's payroll department and get extra withholding in place for a few weeks/months at year end. Though I believe if your withholding has been at a steady rate throughout the year and the grand total is the same or larger this year (2017) as it was last year (2016), that you should fall under safe harbor provisions. So in that sense you may not want to overdo your withholding at year end and create potential problem for next year (2018) due to expectations of withholding at least the same amount again.

I do dislike how the estimated tax payment schedule is uneven. After the relief of filing taxes in April there are only 2 months before the next payment is due.

[sokoloff]

If your underpayment will only be triggered because of a larger payment in December, I would consider contacting your employer's payroll department and get extra withholding in place for a few weeks/months at year end. Though I believe if your withholding has been at a steady rate throughout the year and the grand total is the same or larger this year (2017) as it was last year (2016), that you should fall under safe harbor provisions.

It is not necessary for payroll withholding to have be evenly distributed throughout the year for it to count as "even".

[respond2u]

If my wife brings home a large distribution (10k+) at the end of the year then it will throw things off.  But my dad says there's a form to fill out that will show that it was a sudden payment at the end of the year (Anyone know what form he's referring to?).  And it would get me out of quarterly taxes on that amount received in December.  My wife 'hopes' to pay a distribution around Christmas like this, but she's very non-committal at this point of the year.  Even if she does receive this, I could put it toward our IRA's (that's what I'm thinking right now) and cancel out the income all together.  She very well could decide to keep that money in the company as an emergency fund.

Form 2210, I believe.

I have very uneven income over the year, and don't pay taxes evenly.

When your doing your turbo tax, they'll ask you if all your payments were even. If not, enter them, and then it will send you to another form to fill in when you received your income.

You'll have to pay for the 10K in January if you don't put it all to an IRA.

I'm not giving professional tax advice, nor is anyone else here... Make sure you understand it for yourself!

https://money.stackexchange.com/a/14942 - a good answer to your question

https://www.irs.gov/pub/irs-pdf/f1040es.pdf
https://www.irs.gov/publications/p505/ch02.html#en_US_2017_publink1000194638 -- shows income periods -> tax payment dates

https://www.irs.gov/pub/irs-pdf/f2210.pdf