Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 5, 2016 06:44PM
For 2015 85% of my social security income was taxable. However, my non-SS income was so skewed towards the end of the year that based on just Jan.-Aug. none of my SS income was taxable.

On line 1 (AGI) of Schedule AI of Form 2210, which is correct for periods 1-3: 0% or 85% of SS for the period?

Re: social security on Schedule AI of Form 2210
Posted by: Alan S., July 5, 2016 07:23PM
85% because you receive the SS income monthly, even though the ultimate taxes are based on the annual year end total of taxable income and deductions.

In other words you are calculating just income and deductions per period, not the actual taxes produced by the end of each period.

That same rationale would apply to LT gains and qualified dividends (tax free up to the top of the 15% bracket).

With interest rates so low, it might be easier to just pay your safe harbor estimates in equal quarterly payments and avoid the 2210 AI form since it is a real chore to deal with every year. Doing a very large year end conversion might make the 2210 hassle worthwhile, however.

Re: social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 5, 2016 09:04PM
Thanks, Alan.

I trust that you are correct that the I.R.S. wants me to include 85% of my SS income on line 1, col. c of Schedule AI. (AGI for Jan.-Aug.).

However, I don’t understand the reason you gave for this: “In other words you are calculating just income and deductions per period, not the actual taxes produced by the end of each period.”

Yes—deductions would go on line 4, and taxes on line 12—but this is about line 1 (AGI).

Maybe what you’re saying is that I shouldn’t use the “Social Security Benefits Worksheet”, which yields 0% of SS income, even though that is what is used to calculate the % of SS that goes into AGI on the 1040?

Re: social security on Schedule AI of Form 2210
Posted by: kaneohe, July 6, 2016 12:47AM
Alan, would it be possible also to fill out Sch AI with the limited knowledge that you have at the end of each of those periods or do you have to fill out with 20/20 hindsight? ........ e.g. at the end of Aug, all you know is that you will have X $ in SS income at the end of the yr and you have received 2/3 of it at end of Aug.
You also know how much non-SS you received by end of Aug but don't know how much you will receive the rest of the yr. Is it reasonable or not to assume the non-SS you receive in the final 4 mos will be proportional to the amount you received in the first 8 mos, then calculate how much SS will be taxable at yr end based on that forecast, then use the same % as taxable for the August period.

Re: social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 6, 2016 04:04AM
1. On further thought I’m guessing what Alan is saying is that for Schedule AI line 1 no tax computations should be going on, and what the “Social Security Benefits Worksheet” does is a part of tax computation.

2. I am troubled by the fact that Schedule AI line 1 says “Enter your adjusted gross income for each period”, and by definition the social security part of adjusted gross income is arrived at via the “Social Security Benefits Worksheet”. On the other hand, this wouldn’t be the first time that I.R.S. info. is misleading.

3. When kaneohe says “then calculate how much SS will be taxable at yr end based on that forecast”, I assume you would do that with the “Social Security Benefits Worksheet”. When I do that for Jan.-Aug. I get 0%

Re: social security on Schedule AI of Form 2210
Posted by: Alan S., July 6, 2016 08:40PM
These questions could apply to two situations.
1) 2210 AI after year end being filed to reduce underpayment penalties if income is incurred late in the year.
2) 2210 AI completed early in the year for planning purpose to determine what estimates must be paid each quarter to keep as much money as possible.

In either case, when it comes to SS income or qualified dividends and LT gains in the 15% bracket, the worksheet entry of AGI will require annual projections to be accurate. The worksheet deals WHEN the income is realized as a portion of the full year, not how taxes would be determined if you died early in the year and income then went to your estate. Therefore, if 85% of SS will be included on Form 1040 (maximum), then 85% of SS received in each period should be entered on line 1.
For each successive period you would then enter 85% of the gross amount of the first 3,5,8, and 12 payments since the actual periods are irregular.

You would think the IRS would better clarify this in the Instructions or Pub 505.

Re: social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 6, 2016 09:00PM
Thanks so much, Alan!

You said: "The worksheet deals WHEN the income is realized as a portion of the full year, not how taxes would be determined if you died early in the year . . ."

So I suppose this principle applies to the limitation on itemized deductions and exemption, as well as % social security taxable and qualified income tax rate?

This means that unless you know ahead of time what your late-in-year income is going to be, using Schedule AI for planning may not work very well.

Re: social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 6, 2016 10:27PM
Alan,

Does this same principle apply to AMT & NIIT on Schedule AI?

I.e. even if AMTI for Jan.-Aug. is less than the AMT exemption, do you still have to calculate AMT for Jan.-Aug. if there was full-year AMT?

And even if AGI is less than $200,000 (for single) for Jan.-Aug. do you still have to calculate NIIT for Jan.-Aug. if full-year AGI was more than $200,000?

Re: social security on Schedule AI of Form 2210
Posted by: kaneohe, July 7, 2016 02:30PM
For the taxes, you have annualized the income/deductions by multiplying by the appropriate factors on lines 2 & 5 of Sch AI so I would think you calculate taxes/AMT/other taxes based on those annualized numbers................. The SS was the tricky part but once you accept Alan's answer on that, the rest should be just following the Sch AI.

Re: social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 7, 2016 07:12PM
kaneohe,

I don't quite understand what you're getting at.

I understood Alan's answer to be possibly more general than just applying to AGI. I.e. that for any factor dependent on income, you must use full-year income, not period income.

This could apply to limitation of itemized deductions and exemption, limitation of AMT exemption, and MAGI above NIIT threshold.


Re: social security on Schedule AI of Form 2210
Posted by: kaneohe, July 8, 2016 02:00AM
wanttoknow, I was just in my simple-minded way following the form Sch AI. I really don't know if it
is correct, but the Sch does seem to want you to annualize your income based on the 4 time periods and
(I assumed) calculate your tax based on that annualized full year income for the 4 time periods.

Instructions for line14 (in part):
"Figure alternative minimum taxable income based
on your income and deductions during the periods shown in the
column headings. Multiply this amount by the annualization
amounts shown for each column on Schedule AI, line 2, before
subtracting the AMT exemption"

Re: social security on Schedule AI of Form 2210
Posted by: wanttoknow, July 8, 2016 04:17AM
kaneohe,

Yes, on my first test run I did what you are saying. Everything through line 28 of Form 2210 was annualized. The result is that AMTI is far less than the exemption for all periods less than the full year.

However, the full-year AMTI is > $119,200, so the exemption is reduced, and AMT must be calculated.

I was wondering if the principle stated by Alan means that the full-year excess of A.M.T.I. over exemption must somehow be used for the earlier periods. My understanding of Alan's statement is "for any factor dependent on income, you must use full-year actual income, not period income." The AMT exemption is a factor dependent on income.

However, that the 2210 instructions say to apply the exemption after annualization suggests I might have gone off the deep end on this. If so, nobody will be happier than me to learn that. But I'd like to see what Alan says.



Sorry, only registered users may post in this forum.