The expiration of Covid tax breaks will raise many Americans’ tax bills for 2022
By Ashlea Ebeling, The Wall Street Journal, Jan. 10, 2023
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State rebates/refunds
Flush with money, more than a dozen states issued taxpayers rebates and refunds in 2022. Although these payments won’t count as taxable income on state returns, they often will count as taxable income on federal returns…
The $300 deduction individuals could take, or $600 for married couples, for Nonitemizer charitable deduction wasn’t available for tax year 2022 and could mean a small increase in tax bills…
Taxpayers with dependent children need to pay extra attention. …The tax credit for child and dependent care expenses…taxpayers whose employers offer pretax child and dependent care flexible spending accounts may see lower refunds … [check details - big changes]…
Last year, some mutual funds sold more holdings than usual and distributed gains to investors. That could mean bigger tax bills and smaller refunds for individual investors this tax season, even though their portfolios shrank…
There is still time to pay fourth-quarter estimated tax payments through Jan. 17 and lessen penalties and interest owed…[end quote]
Like many retirees, I pay estimated taxes four times a year. I do a mock-up using my software from the previous year before the current (2022 tax year) software becomes available. Once it’s available I use the current year.
Like many retirees, I pay estimated taxes four times a year.
I keep a spreadsheet on all taxable events, along with the tax tables for the year. Somehow managed to actually have capital gains in my taxable account, so did a ss estimate of how much tax that gain would lead to, and “nulled” it out by making an IRA withdrawal that had almost all of it held as tax paid to the Fed and State. Easier for me than doing the quarterly estimated payments, and also did it the previous tax year, and the IRS didn’t have a problem with it.
I’m not sure if you are collecting SS or not, but I’m retired and have my Fed taxes withheld from my SS check every month. It’s a lot easier for me than making estimated payments. I submitted estimated payments for many years when I had my own business but have relied on Fed Tax withholding to ensure that I don’t get any underpayment penalties from the IRS.
I’m sure you have considered this. Can you share your rationale for the difference? Is it as simple as you’re not collecting SS yet?
I often make decisions midyear that affect my taxes. (e.g. transferring from a Traditional IRA to a Roth IRA, paying tax on I-Bond interest, etc.). So my anticipated estimated tax isn’t “smooth” enough to take out of Social Security every month. I need to calculate it.
As a professional in the area of taxes, I can say that there are a number of folks out there - folks a bit better off than average who might be typical TMF readers - who simply have enough income from investments that they can’t get enough withheld from Social Security to cover their entire tax bill.
Keep in mind that the SSA will only withhold certain percentages of your benefits for Federal taxes. And they don’t withhold state taxes at all. The most they will withhold is 22% of your benefits. If you are in a higher tax bracket, that may barely be enough to cover the taxes on the Social Security itself, with no excess for other kinds of income.
Thanks! We’re not there quite yet, but will be when we are pulling down SS x 2, a P&G pension and RMDs * 2. Then I guess we WILL have to think about estimated payments.
'38Packard ==> add that to the list of things to think about…
Well, you can always have taxes withheld from the pension and RMDs, too. That has a decent shot at covering your tax bill.
I’ve also learned that some folks just like making the tax payments themselves every couple of months. My job isn’t to judge, just to give folks options and help them implement their choice about estimates.
Peter answered for us. We have taxes withheld from our SS, ispouse’s pension and our first back door Roth withdrawal but we also pay quarterly estimated taxes to cover our dividend and interest income.
Simple - I just login and set my RMD amount and then select how much I want withheld for fed taxes. Last RMD it was 24% for the 2022 tax return. I generally do my RMD at the end of the year so I can account for any odd income situations and have the proper withholding. Especially if I have a big year in golf tournament winnings. The process couldn’t be simpler. Since I have no other withholdings my RMD W/H covers my SocSec & Military income. All in one neat bundle.
An RMD is just a withdrawal from your IRA or 401k plan. You tell the custodian of the plan what to withhold for the IRS and your state taxes, using whatever process they set up.
I’m not sure I understand your point. What extra taxes?
Let’s say my RMD is $10k and my tax rate is 30%. I owe $3k in taxes.
If I have the $3k sent to the IRS from my RMD, the net amount moved to an after-tax account is $7k. If I take the whole $10k RMD and pay the taxes from a savings account, I’m still net $7k. Regardless of the mechanics, I pocket $7k and pay $3k in taxes.
Now, when I make donations from my RMD (via QCDs), I get a tax advantage because the donation lowers the taxable RMD amount by the donation amount. So if you’re going to make donations, QCDs are a great way to make them.
Of course, the whole mess could have been avoided if I put more savings into a Roth. When I take my net RMD amount and invest it, I will owe capital gains when I sell the investment (my investments always go up ). With a Roth I get tax free growth and no taxes when I withdraw funds.
Thanks to Intercst for drilling that into my head, a little late. At least I was able to pass that info on to my Wolf cubs.
It’ a good thread, albeit an old one. When I take 10k out of my Ira, I put the entire 10k into my Roth IRA and pay my taxes with my quarterly tax payments wit money taken from my savings or taxable accounts, because that increases the total amount of money that I can grow tax free in my Roth IRA and take out tax free at a later date. I hope to be able to continue to do the same with my rmd’s when the time comes.
). With a Roth I get tax free growth and no taxes when I withdraw funds.