In this video I demonstrate How To Calculate Your Estimated Tax Payments and avoid getting hit with Underpayment Penalties. This is particularly relevant when you have uneven income during the year from sources such as Capital Gains, Business Income and Roth IRA Conversions.

Personal Tax Planning Template Available Here:

00:00 Introduction
02:28 IRS Default Assumption re How You Generate Your Income
3:26 Wage Income is Earned Evenly Throughout the Year
04:28 Roth Conversion Income Generated in Q4 of the Current Year
05:24 The Reality of Income Generation vs the Pro Rata Assumption of Tax Law
06:25 The Timing of Transactions is Not Reported to the IRS
07:25 The Form 1099-R Shows Gross Distribution but not Timing of Distributions
08:36 Calculating Estimated Taxes by Quarter
10:34 Estimated Taxes on Roth Conversion Income
11:45 Income and Estimated Tax Payments are Assumed to be Pro Rata
13:04 The US Tax System is “Pay as You Go”
14:00 How Can Estimates be Due on Income That is Unknown
15:24 How to Elect the Annualized Income Installment Method
16:57 What Does Electing the Annual Income Method Mean
17:25 This Election Helps You Avoid Underpayment Penalties on Estimated Taxes
20:45 Remember to Elect the AIIM for Uneven Income in the Third & Forth Quarters
21:28 You Have to Tell The IRS When Your Income Was Generated
21:54 Form 2210 What Triggers the Underpayment Penalty
22:32 Business Income, Seasonal Income, Capital Gain can All be Annualized
23:55 How to Avoid the 2210 Penalty in TurboTax
24:59 Calculating Estimated Tax Payments by Quarter
26:15 Reporting Income in Quarterly Installments to Avoid Under Payment Penalties
27:10 Turbo Tax Entry of Cumulative Annualized Adjusted Gross Income (AGI)
30:05 How to Make the Election in TurboTax
30:59 How Much Estimated Tax Needs to be “Paid In”
31:18 The 90% of Current Year Safe Harbor for Estimated Taxes
31:46 The 100% (or 110%) of Prior Year Safe Harbor for Making Estimated Tax Payments
34:25 Calculating Estimated Tax Based on the Prior Year is “Safest”
35:55 Example 1 – Calculating Estimated Taxes on Roth Conversions
37:29 Which Safe Harbor Method Results in Lower Estimated Payments
39:13 Applying the 90% Threshold to Projected Tax
40:41 When Are Estimated Taxes Due – April 15, June 15, September 15, January 15
43:58 Calculating 90% Safe Harbor Estimates with 2024 Tax Brackets
46:50 Risk of Underpayment Penalties with Safe Harbor Estimates
47:38 Adjusting Your Income Projections Mid Year
50:09 Being Underpaid vs Giving the Government an Interest Free Loan
53:04 Pay Estimated Taxes Too Fast or Earn the Risk Free Rate of Return
53:45 Uneven Income Earned Earlier in the Year (Q1 and Q2)
56:31 Surprise Income from Brokerage Capital Gains in Q1 and Q2
58:21 Example 2 – Estimated Taxes with Carryovers and Withholding
59:32 Using the 110% Safe Harbor Threshold
1:00:27 Where to Find Over Payments Applied on Form 1040 Tax Return
1:02:36 Withholding on W-2, 1099R, SSA 1099, 1099 CONS and other Tax Forms
1:06:32 Withholding Applies Evenly to the Quarters (it’s deemed Pro Rata)
1:10:25 How Withholding Can Help You Avoid Underpayments on Q1 Income
1:12:42 Example of How Withholding Occurring in Q4
1:16:21 Paying Tax Using Withholding vs Outside Sources of Funds
1:17:42 Roth IRA Contribution Limits – Planning Considerations
1:18:42 Estimated Tax Calculator

#taxplanning #taxtips #rothira #rothconversion…(read more)

LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA

Roth IRA Conversion Part 5: Calculate Estimated Taxes and Avoid Underpayment Penalties

As you consider converting your traditional IRA to a Roth IRA, it’s important to understand the tax implications of this decision. One key aspect to consider is how to calculate your estimated taxes and avoid underpayment penalties.

When you convert a traditional IRA to a Roth IRA, the amount you convert is considered taxable income in the year of the conversion. This means that you will owe taxes on the converted amount, and it’s important to plan for how you will pay these taxes come tax time.

One way to ensure you are not hit with underpayment penalties is to calculate your estimated taxes and make quarterly estimated tax payments throughout the year. This can help you avoid a large tax bill at the end of the year and ensure you are meeting your tax obligations in a timely manner.

To calculate your estimated taxes, you can use the IRS Form 1040-ES, which is the Estimated Tax for Individuals form. This form will help you estimate your total tax liability for the year, taking into account any income from your Roth IRA conversion. Based on this estimate, you can then divide your total tax liability by four to determine how much you should be paying in quarterly installments.

It’s important to note that underpayment penalties can be assessed if you do not pay enough in taxes throughout the year. The IRS requires that you pay at least 90% of your current year tax liability, or 100% of your previous year’s tax liability (110% if your adjusted gross income is over $150,000) to avoid penalties.

By calculating your estimated taxes and making quarterly payments, you can avoid underpayment penalties and stay on top of your tax obligations. Planning ahead and staying organized when it comes to taxes can help you avoid any surprises and ensure a smooth tax season.

In conclusion, as you consider converting your traditional IRA to a Roth IRA, be sure to calculate your estimated taxes and make quarterly payments to avoid underpayment penalties. By being proactive and staying on top of your tax obligations, you can pave the way for a successful conversion and enjoy the benefits of a Roth IRA in the long run.