April 15, 2019 at 4:31 pm #3223
In situations where owing taxes in excess of $1,000 can’t be anticipated (e.g., income derived from mandatory stock sales), is one simply expected to make estimated payments ‘just in case’ or are penalties waived when income has been received in that way?
I’m not aware of any formula that will tell me that ‘x’ amount of unexpected income will leave me owing more than $1000 tax on December 31st, and that I therefore need to pay estimated taxes during the quarter I received that income as a precaution.
Replies appreciated.April 15, 2019 at 7:59 pm #3224
If you pay estimated taxes tied to your income (unexpected or not) you should be close . If you can withhold, even better since timing of the withholding is not as critical as w/ estimated taxes. See Sch AI Form 2210. https://www.irs.gov/pub/irs-pdf/f2210.pdfApril 15, 2019 at 10:45 pm #3225
rc77z, your question isn’t totally clear. You haven’t really told us whether you’re asking about $1,000 being the total tax for the year, or about the $1,000 being the balance of tax after applying withholding to cover some, most, all, or maybe just quite not enough, of the year’s tax without the additional (unanticipated and unwithheld) income and the resultant additional tax…April 15, 2019 at 11:23 pm #3226
“I’m not aware of any formula that will tell me that ‘x’ amount of unexpected income will leave me owing more than $1000 tax on December 31st, and that I therefore need to pay estimated taxes during the quarter I received that income as a precaution.”
You can estimate your taxes w/ tax software or a tax calculator. Unexpected income should be input there and the new result will tell you if you will have a shortage or not. Hopefully the unexpected income comes early enough that you have time for the estimated tax payment.April 16, 2019 at 1:56 am #3227
Thanks for those replies.
The person in question is retired so she had no withholdings. Because of the unexpected income from a mandatory stock sale she ended up owing approximately $1,050 in tax at the end of the year. Normally she wouldn’t have owed anywhere near that amount.
As far as I know, social security and relatively small amounts of interest and dividend income are the only predictable income she has.
The estimated tax payment would have been due on January 15 of this year. She didn’t receive the tax document showing her income from the stock sale until the end of January.
Therefore I couldn’t see how she would have anticipated owing $50 more than the amount at which she could have ignored paying estimated tax.April 16, 2019 at 1:03 pm #3232
Now that the lesson that such things can happen, it may be useful to anticipate a repeat. One could keep tabs on upcoming mergers/spinoffs on
stocks owned and inquire about the consequences.
I too was blindsided by a similar exchange in 2017. I was used to such
exchanges being mostly tax free so had no idea. Hopefully lesson learned and I will be more alert in the future.
It is likely that your penalty will be minimal. Since there would have been no penalty at $1000, I believe the penalty, if any, will be based on
the excess $50 and interest at 5% or so for the period it was late (3 mos or so). Should not be very much and likely not worth IRS time to pursue.April 19, 2019 at 6:08 pm #3239
One way to take care of it is to have withholding equal to previous year’s tax liability. That way, even if you have unexpected income and owe tax, there will not be any estimated tax penalty.April 19, 2019 at 6:38 pm #3240
rc77z – The Motax response hits it on the head for sure. On the other hand, I have never been told by any taxpayer that I deal with that they received a penalty for under withholding (and I have seen numerous taxpayers owing more than $1,000 over the years). I think the IRS might have “bigger fish” to go after!
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