1040 Tax Calculator / Figuring Withholding

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PickitPaul
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1040 Tax Calculator / Figuring Withholding

Post by PickitPaul »

Trying to figure out how much tax to withhold from RMD in IRA. Had some cap. gains on 2021 1040 that pushed up income level, so going by the "Safe Harbor" method for 2022 taxes would end up paying too much tax.

Question is: Do most of you wait for the last quarter cap. gains / dividend amounts in taxable mutual funds to be posted to get more accurate figure for the year? Do they also post how much of dividends are qualified? This would require to wait until Dec.15 for the info. to be available.
aristotelian
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Re: 1040 Tax Calculator / Figuring Withholding

Post by aristotelian »

I just do withholdings based on the previous year. That's what the safe harbor amounts are based on. If I end up owing more or less, so be it.
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FiveK
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Re: 1040 Tax Calculator / Figuring Withholding

Post by FiveK »

There are multiple Safe harbors - see that link for more.
hoofaman
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Re: 1040 Tax Calculator / Figuring Withholding

Post by hoofaman »

FiveK wrote: Fri Dec 09, 2022 3:09 pm There are multiple Safe harbors - see that link for more.
Ah neat, I was actually a bit worried about this given that I had a job change this year and some lumpy income, but it looks like as long as I paid 110% of the tax I paid in 2021 I'm all good
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PickitPaul
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Re: 1040 Tax Calculator / Figuring Withholding

Post by PickitPaul »

What If taking the safe harbor of paying 100% of last year's tax is not a good option? (I don't have the capital gains this year that boosted AGI last year) So if the tax paid would be lower by estimating with a 1040 tax calc. like Dinkytown - why not do it?
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FiveK
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Re: 1040 Tax Calculator / Figuring Withholding

Post by FiveK »

PickitPaul wrote: Fri Dec 09, 2022 6:54 pm What If taking the safe harbor of paying 100% of last year's tax is not a good option? (I don't have the capital gains this year that boosted AGI last year)
Then there are the safe harbors of
- owing less than $1000 when filing, or
- having paid at least 90% of the year's tax liability
via withholding.
So if the tax paid would be lower by estimating with a 1040 tax calc. like Dinkytown - why not do it?
Must be something implied here but I'm not sure what. Using a tax estimation tool, by itself, won't accomplish anything so...?
aristotelian
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Re: 1040 Tax Calculator / Figuring Withholding

Post by aristotelian »

PickitPaul wrote: Fri Dec 09, 2022 6:54 pm What If taking the safe harbor of paying 100% of last year's tax is not a good option? (I don't have the capital gains this year that boosted AGI last year) So if the tax paid would be lower by estimating with a 1040 tax calc. like Dinkytown - why not do it?
It really doesn't matter one way or another. Whether you over-withhold or under-withhold you will end up paying the same at the end of the day. If you really want an accurate estimate, try doing your actual tax return.

By the way, not freak you out, but if you have missed payments for 2022 it's already too late.
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PickitPaul
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Re: 1040 Tax Calculator / Figuring Withholding

Post by PickitPaul »

aristotelian wrote: Fri Dec 09, 2022 7:13 pm
PickitPaul wrote: Fri Dec 09, 2022 6:54 pm What If taking the safe harbor of paying 100% of last year's tax is not a good option? (I don't have the capital gains this year that boosted AGI last year) So if the tax paid would be lower by estimating with a 1040 tax calc. like Dinkytown - why not do it?
It really doesn't matter one way or another. Whether you over-withhold or under-withhold you will end up paying the same at the end of the day. If you really want an accurate estimate, try doing your actual tax return.

By the way, not freak you out, but if you have missed payments for 2022 it's already too late.
Withholding from RMD for the whole year at the end of year is the same as making estimated payments according to the IRS.
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PickitPaul
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Re: 1040 Tax Calculator / Figuring Withholding

Post by PickitPaul »

To answer my own question, I guess at this point, i can wait a few more days until the mutual funds report their distributions for the 4th qtr., before taking RMD with the withholding.

I just wanted to ask if anyone waits for the 4th qtr. distribution, and the capital gains which can be large (if any) - it would make the calculation with the tax calculator more accurate without having to do the actual tax return.
scrabbler1
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Re: 1040 Tax Calculator / Figuring Withholding

Post by scrabbler1 »

PickitPaul, I have been helping my friend with his portfolio and income tax returns for the last decade, after he received a considerable inheritance when his remaining parent passed away. He still works full-time.

He received an inherited IRA from which he takes RMDs every year. We use that RMD to withhold some income taxes via 1099-R to cover the investment income generated by the inherited brokerage account. This 1099-R withholding acts like his wage withholding when it comes to reaching a safe harbor to avoid any underwithholding tax penalties. I also keeps his taxes due in April very small (or a tiny refund < $100) which we roll into the following year.

I wait until as late in December (after most mutual fund distributions) as I can so I will have as good an estimate as possible for his taxes due. Some of the data (i.e. qualified dividends, non-dividend distributions) I would need to best guess his taxes due won't be known until the 1099-B/DIV forms come out in late January or into February, making the accuracy of the tax withholding somewhat suspect. I can always assure him of not owing any penalties. How close I can get to within $100 owed or due in refund is the next challenge, though not as crucial.

To best guess his overall tax situation, I have created a spreadsheet which mimics his income tax forms, at least a skeleton version of the forms, so I can play what-if for his taxes.
Topic Author
PickitPaul
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Re: 1040 Tax Calculator / Figuring Withholding

Post by PickitPaul »

Thanks Scrabbler1 for confirming that waiting till mid Dec. is not a bad thing to do, I am going to wait so I have all the dividends / cap gains reported for 4th qtr. on all the funds. As for the qualified dividends, since they are not reported before Jan. of next year I was thinking of just plugging in last year's numbers as long as things didn't change for the year ie. same # of shares. That should get close enough.
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