The penalty on income-tax underpayments is 8% for most of 2024.
To avoid these charges, Americans must pay at least 90% of what they owe well before the April tax-due date. The deadline is Dec. 31 for employees and others who have taxes withheld, and it is Jan. 15, 2025, for filers paying quarterly estimated taxes.
Taxpayers can also avoid penalties by paying an amount equal to either 100% or 110% of their 2023 taxes, depending on income. For filers paying quarterly estimated taxes, the 100% or 110% thresholds apply per quarter. This is the easiest way to CYA if you don’t know what your actual 2024 income will be (due to investments, etc.).
Read IRS Publication 505 (2024), Tax Withholding and Estimated Tax for details.
The easiest way to pay estimated tax is direct payment to the IRS. Payment from a savings or checking account is free but they charge a processing fee for debit card, credit card or digital wallet.
iirc, you are supposed to pay your liability in evenly divided amounts quarterly. If you have a sudden, unplanned, jump in income, you can pay uneven amounts. But, if you knew you owed a lot, and haven’t paid anything, until now, Q4 is due January 15, you may be in the kimchee.
I pay all my Federal income taxes in the Fourth Quarter and manage my income so that I get most of it towards the year end. Why give the Gov’t a loan of your money?
Yep, I took a massive long-term capital gain last week. So the taxes will have to be paid on Jan 15th. I took the long-term capital gain this year because I am attempting to balance a bunch of old long-term capital losses against a bunch of short-term capital gains next year. And the bunch of short-term capital gains will be short-term no matter how long I hold them (short puts are always considered to be a short-term gain, even if held over 2 years like I have done.)
Why does this make sense? Because I’d rather pay 23.8% tax on my long-term capital gains this year than pay 32% (or potentially even 35%) on my short-term capital gains next year. If I use the long-term losses this year, they will offset income that would be taxed at 23.8%, but if I use them next year, and my planning works out, then they will offset income that would be taxed at 32%/35%. Money-wise, it’s not a huge difference, but I still like to optimize my taxes whenever possible.
I am not an AARP member, but I use their online calculator once a month or so to keep up on the tax situation.
Keep a spreadsheet updated after every taxable event in the tax year. Track pension income, IRA withdraws, Treasury interest, bank interest, and Capital gains, and the amount of Federal and State tax withheld. Keep track of IRMAA and NIIT thresholds. NIIT is not an issue. Need to be mindful of IRMAA, much lower threshold than NIIT.
Sold a couple of long term holdings in taxable account, and on same day used IRA account to make withdrawal’s that are almost 100% tax payments to Fed and State to pay tax owed on these capital gains. It has worked last few years with no questions raised by IRS or Fido. Actually overpay taxes by what I figure is a couple of percent, just to be safe.