Looks like that quickbooks self employed is perfect, takes care of both issues.
For estimated tax, you do not have to be right on the money at the time of tax reporting. IRS allows certain margin of error (like 30%) without penalty. Even if you miss the boat by only paying 40% of the estimated tax the penalty is not huge. The time you will pay a huge penalty is that if you under paying the tax and they found out after two years, at that time the interest and penalty will be calculated base on the date of your filing to the date of payment.
I thought you had to pay 90% in estimated taxes of what youâll ultimately owe or face a penalty and interest. I think the exception if if you pay 100% of what you owed the prior year in taxes in quarterly estimated taxes.
Seems like it would be hard to get it so close to 90%, because who knows the future? Unless you can bring it all up to speed by the end of the year.
Then youâd want to pay 100% of what you owed the prior year. The IRS doesnât really care how hard it is to estimate And you canât just wait til the last quarterly payment to bring it up to speed unless you made significantly more of your income in that last quarterâŠ
@1214mom - were you saying that your son sold stock to generate taxable income so that he would be allowed to contribute to a Roth? If so, that doesnât work â he can only contribute if he had wages (and the stipend might not count either). Sorry if I misunderstood your post.
First hand confirmation of @shellfellâs point above. CT tried to charge me interest because they assumed that I had earned money throughout the year, when in reality, the payment came in on Dec 27th. I had to file a form that showed when the money was earned throughout the year, and I was then fine and received my small refund instead of having to pay interest. Interestingly, the Feds never pursued.
I also throught the threshold was 90%.
Hmm, my son was an employee the prior year, this was his first year as a contractor. He will definitely pay more this year than last, so that should be easy.
The penalty is significant in my experience. One year we had a huge income with huge taxes owed. I didnât want to withhold 100% of the prior year tax when I knew we are going back to normal income with moderate taxes. I had to estimate the earnings and didnât do a good job. Ended up under holding and got fined. About $2-3000. learned my lesson. Never again.
Weâve never gotten fined, and Iâve missed pretty badly a few times.
I generally try to use the 4th quarter estimate to get close. The penalty is basically paying interest on the amount of the underpayment for as long as you have underpaid, the current rate is 4% annually, so unless you miss by a ton, the penalty will not be that large. I donât think Iâve ever paid more the a few hundred $.
Itâs kind of annoying that you get charged interest when you underpay, but donât get interest when you overpay and get a refund.
The safe harbor I believe is 90% of this yearâs bill, or 100% of last yearâs bill (110% if your AGI is more than $150K if filing joint).
Our CPA always uses the safe harbor because our income fluctuates significantly. We have never paid any penalty or interest over 3 figures.
^We do the same as HImom.
@CIEE83 - yes, that was his âplan.â He now realizes it wasnât a great idea. He has learned quite a bit about finances and taxes and how things really work in the last several months, so itâs OK.
To answer the original question, probably at least $2M to feel somewhat financially secure, especially if I wind up staying in my overpriced, overtaxed area after retirement. I am going that high because my retirement money is mostly pre-tax so I have to account for paying taxes when I take distributions.
It is wise to consider the pre-tax factors. I pointed that out to DH when he first started our retirement planning spreadsheet years ago. He said âooohâ and made the proper adjustments.
Iâd vote for $3m, which would allow 4% withdrawal and less than six figures to enjoy life.
^^ are either of you taking into account SS payments when calculating your annual income after retirement?
Just curiousâŠ
^^nope, not taking SS until 70, or at least the primary beneficiary. Will do a spousal at the secondary at FRA. but that is a small amount for the SAHSpouse.
Only once we paid a penalty to the IRS. It was about $300⊠bfd. The alternative would have been a 5-digit loss had we sold the stock to pay the tax.
We have never counted SS. Only I will get it as H never had enough quarters he paid in and his pension offsets any SS he might otherwise be entitled to. My SS hopefully will be enough to pay my Medicare premiums and maybe Hâs. That will be nice.
All the 10 or so years I worked for state govt, they did NOT contribute to SS for me (they were exempted from doing so). I do not have many quarters of SS contributions. :(. I am fortunate we have Hâs pension which will continue at 55% if I survive longer than he.