What if I don't make quarterly installments?

Question

I moved last year and the relocation (paid by my company) drove our family's adjusted gross income up much higher than it normally is. This pushed us past the threshold where we no longer get a lot of deductions like the child tax credit.
We also took a $29K distribution on a 401k for our new house. SO we got hammered for $5,700 to Uncle Sam.

Now Turbo tax calculates that unless we make quarterly installments this year ,we will face penalties.

Now of course we will NOT make that kind of AGI again this year. However, I am concerned that the IRS won't care and will assume I should be making them anyways.

As long as it works out close in the end, do they care??

Thanks

Answer 1

There are exceptions to having to pay penalties, and if this year was a one-time thing and you got hit with penalties this year, you probably qualify to get the penalty taken off, or at least reduced a lot.

Look at form 2221, where the penalty is figured. There's a place to put your 2005 tax - it's line 8 in Part II. Basically, you're only required to have paid in (through withholding and/or quarterly payments) the amount of last year's tax, so you probably won't owe all that much penalty if this year is a lot higher.

Also, are you sure that you took all allowable deductions for the move?

Pulling the money out of the 401K certainly didn't help though, especially if you're under 59-1/2 and got hit with a 10% penalty for doing so - that would have been $2900 just for the penalty, in addition to the taxes on the amount.

The IRS makes no assumptions in any given year of what you should be paying in quarterly - it's just at the end of the year, when everything is reconciled, that it's clear whether or not you paid in enough, so that shouldn't be a concern - yes, if it all comes out within $1000 at the end, you're OK. So if you don't expect to make that much again in 2007, don't worry about making estimated payments.

Answer 2

I think that's just a software-generated statement. I believe I'd see if the software will let you file without setting up estimated tax payments, and then if you see later on that you need to do that, it's no big deal to download the forms and instructions from the IRS web site and send them in.

The date due for the first estimated tax payment is today, by the way. The next one is the middle of June, then the middle of September, and then the middle of January 2008.

Answer 3

as long as it works out in the end, you're fine, because whether you owe a penalty is determined when you file your taxes.