When to pay estimated taxes on mutual fund distributions in December 2018?

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S17C
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When to pay estimated taxes on mutual fund distributions in December 2018?

Post by S17C » Sat Aug 12, 2017 1:48 am

Fidelity's mutual funds for Total U.S. Stock Market and international will pay a hefty distribution in December 2018. Each around $0.97 per share in dividends and $0.30 per share in capital gains. If investors wait until April 2019 to pay the taxes due, this could create a penalty for owing more than the federal limit.

Does the brokerage report the distribution date to the IRS of when the distribution was actually paid out? Perhaps if a sizeable distribution is paid in December 2018, then the appropriate amount of estimated tax can be paid by the January 2019 estimated tax deadline?

Or does the IRS expect investors to make estimated tax payments in April 2018, June 2018 and September 2018 even though they haven't yet received the large December 2018 distributions?
Last edited by S17C on Sun Aug 13, 2017 12:43 am, edited 1 time in total.

mhalley
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by mhalley » Sat Aug 12, 2017 3:26 am

Estimated taxes are technically due the quarter that you receive the money, so paying in Jan should be fine. You may need to file a form 2210
.You may be able to annualize your income and make an estimated tax payment or an increased estimated tax payment for the quarter in which you realize the capital gain. You would have to file Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, with your tax return to show us that your uneven estimated payments match up with the income that you received unevenly over the course of the year.
https://www.irs.gov/help-resources/tool ... utions-etc

There are several safe harbor rules that allow some underpayment.
. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
https://www.irs.gov/businesses/small-bu ... ated-taxes

SlowMovingInvestor
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by SlowMovingInvestor » Sat Aug 12, 2017 3:50 am

S17C wrote:Fidelity's mutual funds for Total U.S. Stock Market and international will pay a hefty distribution in December 2018. Each around $0.97 per share in dividends and $0.30 per share in capital gains.
I'm a little confused. Has Fidelity announced distributions for Dec 2018 already ? How is that possible ?

The Wizard
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by The Wizard » Sat Aug 12, 2017 4:48 am

First of all, a total stock market index(?) fund shouldn't be paying any capital gains distributions. Vanguard's certainly doesn't.

Secondly, let's worry about 2017 distributions for now, not 2018.

And thirdly, if the additional tax owed on these distributions is a significant amount, then just make an estimated payment when you receive the distribution. Alternately, just increase withholding on a different income stream...
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dbltrbl
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by dbltrbl » Sat Aug 12, 2017 7:06 am

Alternatively, just ask Fidelity or the provider to withhold some % for taxes so you do not have to make an estimated payment. Depending on your tax bracket, 15% or 20% may be ok.

livesoft
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by livesoft » Sat Aug 12, 2017 7:19 am

Bottom line: It is not something to worry about. Besides, by that time one's taxes won't be estimated at all. One should have a very good idea of what one's real tax situation will be by mid-December of each year.

Another way to think about this: Estimated taxes are NOT future taxes. One pays taxes only on income already received in the past. The so-called "estimate" is that one figures out roughly the taxes on income that one has received and can pay that. Later, when one works out all the details by filling out their Form 1040, they reconcile the estimate with the true actual taxes that they should pay.
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Spirit Rider » Sat Aug 12, 2017 8:24 am

The Wizard wrote:First of all, a total stock market index(?) fund shouldn't be paying any capital gains distributions. Vanguard's certainly doesn't
You can't really say a TSM index fund shouldn't be making any capital gains distributions. SEC regulations require all mutual funds to distribute net capital gains as distributions. Even Vanguard has from time to time had capital gains distributions.

However, Vanguard has a patented method to treat an ETF as a share class of the mutual fund. This allows them to tax gain/loss harvest more efficiently on the ETF transactions to minimize/eliminate capital gains distributions for the other classes of the mutual fund. A couple of years ago Vanguard announced they would license the patent, but other fund companies have not done so, because the licensing fees Vanguard wants mostly negate the benefit to other fund companies.

This leaves all other TSM index funds at a distinct capital gains distribution disadvantage to Vanguard. The other fund companies generally have been able to have low/no capital gains distributions in down years and after 2000-2002 and 2008-2009 they were able to use carry-forward losses for several years.

With the recent run up, expect to see larger capital gains distributions in other index funds when the market makes a correction. I'm guessing this is what the OP is alluding to. Probably some Fidelity newsletter prognosticated this.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Longdog » Sat Aug 12, 2017 8:29 am

S17C wrote:Fidelity's mutual funds for Total U.S. Stock Market and international will pay a hefty distribution in December 2018. Each around $0.97 per share in dividends and $0.30 per share in capital gains. If investors wait until April 2019 to pay the taxes due, this could create a penalty for owing more than the federal limit.
How do you know this?
Steve

The Wizard
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by The Wizard » Sat Aug 12, 2017 10:01 am

Spirit Rider wrote:
Sat Aug 12, 2017 8:24 am
The Wizard wrote:First of all, a total stock market index(?) fund shouldn't be paying any capital gains distributions. Vanguard's certainly doesn't
You can't really say a TSM index fund shouldn't be making any capital gains distributions. SEC regulations require all mutual funds to distribute net capital gains as distributions. Even Vanguard has from time to time had capital gains distributions...
OK, though I don't quite understand the mechanism by which VTSAX would realize a CG that would need to be distributed.
I suppose if company A reached an agreement to acquire company B, then all mutual funds holding shares of company B would have to sell them at, presumably, a nice gain?
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Geologist
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Geologist » Sat Aug 12, 2017 10:22 am

The Wizard wrote:
Sat Aug 12, 2017 10:01 am
Spirit Rider wrote:
Sat Aug 12, 2017 8:24 am
The Wizard wrote:First of all, a total stock market index(?) fund shouldn't be paying any capital gains distributions. Vanguard's certainly doesn't
You can't really say a TSM index fund shouldn't be making any capital gains distributions. SEC regulations require all mutual funds to distribute net capital gains as distributions. Even Vanguard has from time to time had capital gains distributions...
OK, though I don't quite understand the mechanism by which VTSAX would realize a CG that would need to be distributed.
I suppose if company A reached an agreement to acquire company B, then all mutual funds holding shares of company B would have to sell them at, presumably, a nice gain?
In your example, Company A would have to be acquring B for cash. If it was using its own stock, there would be no taxable gain. Such things do happen as when private equity forms take companies private.

Theoretically, redemptions of shares could force holdings in the fund to be sold that would realize capital gains.

However, VTSAX might create them, they did have more than $300 million in realized capital gains in 2016 (see the 2016 annual report). These didn't have to be distributed to shareholders because they were offset with capital loss carryforwards. At Dec. 31, 2016, VTSAX still had more than $400 million in capital loss carryforwards to offset any capital gains that might be realized in the future.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Geologist » Sat Aug 12, 2017 10:28 am

Spirit Rider wrote:
Sat Aug 12, 2017 8:24 am

However, Vanguard has a patented method to treat an ETF as a share class of the mutual fund. This allows them to tax gain/loss harvest more efficiently on the ETF transactions to minimize/eliminate capital gains distributions for the other classes of the mutual fund. A couple of years ago Vanguard announced they would license the patent, but other fund companies have not done so, because the licensing fees Vanguard wants mostly negate the benefit to other fund companies.

This leaves all other TSM index funds at a distinct capital gains distribution disadvantage to Vanguard. The other fund companies generally have been able to have low/no capital gains distributions in down years and after 2000-2002 and 2008-2009 they were able to use carry-forward losses for several years.
Vanguard's TSM fund has capital loss carryforwards now (used $300 million last year and has $400 million remaining as of Dec. 31, 2016 as I discuss in another post), in addition to the ETF escape hatch (and when does that patent expire, by the way). You could ask why other TSM funds don't have capital loss carryforwards now; perhaps they aren't run with such an eagle eye on tax efficiency.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by The Wizard » Sat Aug 12, 2017 10:49 am

Geologist wrote:
Sat Aug 12, 2017 10:22 am
Theoretically, redemptions of shares could force holdings in the fund to be sold that would realize capital gains...
My impression in that case is that CGs are passed directly to the redeemer, no?

But on reflection, if I redeem $50,000 of VTSAX, they are not going to sell small amounts of all 3000 holdings to come up with the money.
They'd just sell a handful of shares in a few companies they are overweight in that day to get my $50k. Hence they would most likely have CGs on those sales...
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by samsoes » Sat Aug 12, 2017 10:53 am

SlowMovingInvestor wrote:
Sat Aug 12, 2017 3:50 am
S17C wrote:Fidelity's mutual funds for Total U.S. Stock Market and international will pay a hefty distribution in December 2018. Each around $0.97 per share in dividends and $0.30 per share in capital gains.
I'm a little confused. Has Fidelity announced distributions for Dec 2018 already ? How is that possible ?
Glad I'm not the only one who is confused.

Every now and then we lose track of the time or even which day it is. For a moment, I thought I'd lost track of the year.
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S17C
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by S17C » Sat Aug 12, 2017 11:01 am

Does the IRS know that a distribution is paid-out in December 2018, rather than January 2018? Do the tax statements include a date of when the distribution was made? If so, that would show that I wasn't holding out on making quarterly payments.
Last edited by S17C on Sun Aug 13, 2017 12:44 am, edited 1 time in total.

Geologist
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Geologist » Sat Aug 12, 2017 11:05 am

The Wizard wrote:
Sat Aug 12, 2017 10:49 am
Geologist wrote:
Sat Aug 12, 2017 10:22 am
Theoretically, redemptions of shares could force holdings in the fund to be sold that would realize capital gains...
My impression in that case is that CGs are passed directly to the redeemer, no?

But on reflection, if I redeem $50,000 of VTSAX, they are not going to sell small amounts of all 3000 holdings to come up with the money.
They'd just sell a handful of shares in a few companies they are overweight in that day to get my $50k. Hence they would most likely have CGs on those sales...
It is possible that many small sell transactions unbalanced by buys led to the $300 million in realized capital gains in 2016. This is a small amount in the context of the fund and it may not be possible to keep the fund on track and always sell losers. (At year-end 2016, the fund had $11 billion in unrealized losses but this was dwarfed by the $166 billion in unrealized gains.)

The bigger risk is that in a panic many shareholders redeem and then the fund has to realize many capital gains. This has actually happened to any number of active funds in past market downturns: the fund actually declined and yet distributed a large capital gains distribution because it had to sell shares on which it still had a gain in order to meet redemptions.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by ofckrupke » Sat Aug 12, 2017 11:08 am

OP:

estimated tax for income received in the 4th quarter of 2018 is considered timely-paid if paid at or before the quarterly due date in January 2019. This is likely covered in IRS publication 505.

Though, possibly, this particular sky won't actually fall on you in Dec 2018...

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Geologist » Sat Aug 12, 2017 11:11 am

S17C wrote:
Sat Aug 12, 2017 11:01 am
I'm the OP. I'm a first time equity investor this year; I had a large bond called last year and moved into six digit investment of TSM and six digits of international. I'm set for 2017 taxes since I'm in the safe harbor. But December 2018 will (probably) see large distributions. I know distributions can't be a certainty, but one can use the last few years' of those fund distributions to get an approximation of what may be distributed. At that present distribution rates, I will incur a tax penalty if I wait until April 2019 to pay the tax since I won't be in safe harbor after 2017.

I'd rather not give the government an interest-free loan by making a estimated tax payment in April 2018 for a December 2018 distribution. But the IRS warns that there will be a penalty even if 100% of tax owed is solely made in January 2019, rather in than beginning in April 2018, June 2018 and September 2018 as well.

Does the IRS know that a distribution is paid-out in December 2018, rather than January 2018? Do the tax statements include a date of when the distribution was made? If so, that would show that I wasn't holding out on making quarterly payments.
There is a quarterly method of assigning income as well as making estimated tax payments. They don't assume you can know what income you will get in the fourth quarter in advance.

I think you are getting overworked over what might be nothing. Overall, I think the capital gains distributions will depend on what happens in the market in 2018 and you have no idea what that will be.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by livesoft » Sat Aug 12, 2017 11:15 am

S17C wrote:
Sat Aug 12, 2017 11:01 am
Does the IRS know that a distribution is paid-out in December 2018, rather than January 2018? Do the tax statements include a date of when the distribution was made? If so, that would show that I wasn't holding out on making quarterly payments.
No, a 1099-DIV sent to the IRS does not include the date when the distribution was made. It does have the calendar year on it.
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Using Form 2210

Post by celia » Sat Aug 12, 2017 11:35 am

S17C wrote: Does the IRS know that a distribution is paid-out in December 2018, rather than January 2018? Do the tax statements include a date of when the distribution was made? If so, that would show that I wasn't holding out on making quarterly payments.
If your taxable income does not come in evenly throughout the year and the taxes are underwithheld, you will be filling out Form 2210 as part of your income tax return to show how much money (and thus taxes owed) came in each quarter. So if you were a book author who had no income except for a large royalty received in December, you would report it so the IRS will know this and not penalize you as long as the estimated taxes are paid by the following estimated tax date (the following January 15, in this case).

See https://www.irs.gov/taxtopics/tc306.html

So, your tax statements will not show the dates, but you can report it yourself, by each calendar quarter.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by FactualFran » Sat Aug 12, 2017 12:27 pm

S17C wrote:
Sat Aug 12, 2017 1:48 am
Or does the IRS expect investors to make estimated tax payments in April 2018, June 2018 and September 2018 even though they haven't yet received the large December 2018 distributions?
A basic expectation of the IRS is that the amount withheld and made as estimated payments for a year is at least 90% of the tax for the year. If you meet that expectation for the year and proportionally meet it as of the due date of each quarterly estimated payment, then you do not owe any quarterly underpayment penalties.

There are other exceptions to owing an underpayment penalty. However, if you meet the basic expectation, then you do not need to worry about the details of those exceptions.

One exception is to use the Annual Income Installment Method. Using it requires you to do the likely time consuming work of determining what your income was from the start of the year to the end of each quarter and calculating the minimum amount that you should have paid through the end of each quarter.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by kaneohe » Sat Aug 12, 2017 1:38 pm

S17C wrote:
Sat Aug 12, 2017 11:01 am
....................................
Does the IRS know that a distribution is paid-out in December 2018, rather than January 2018? Do the tax statements include a date of when the distribution was made? If so, that would show that I wasn't holding out on making quarterly payments.
IRS assumes that income is distributed equally during the year so expects the estimated payments to reflect that. As FF has said,you have the option for paying tax related to your actual income each period with F2210 Sch AI which puts the burden on you to prove that you are correct. Basically it means you need to know your incomes/deduction for each period (or cumulative period) and then calculate the tax based on that. Essentially you are doing 4 tax returns.
Fun! The interesting test is whether you are willing to repeat that next year.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Lexi » Sat Aug 12, 2017 4:29 pm

The simplest way is to make sure you meet the safe harbor for 2018. If you check before the end of the year you can adjust as needed.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by kaneohe » Sat Aug 12, 2017 8:46 pm

Lexi wrote:
Sat Aug 12, 2017 4:29 pm
The simplest way is to make sure you meet the safe harbor for 2018. If you check before the end of the year you can adjust as needed.
Safe harbors require equal quarterly payments. If you are really paying estimated taxes as OP suggests, if you adjust at end of yr,
the payments won't be equal so you won't meet safe harbor. You get off the hook as suggested in previous posts by the F2210-AI route
or if you do withholding, instead of estimated payments.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Lexi » Sat Aug 12, 2017 9:10 pm

You will meet the safe harbor if the extra income comes in December and you check to see that you meet the safe harbor requirements by the deadline for the fourth quarter estimated tax payment. Having to fill out a form to show the income and payments by quarter is part of that, which is the simplest way to be sure you do not owe a penalty.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by kaneohe » Sun Aug 13, 2017 12:56 am

Lexi wrote:
Sat Aug 12, 2017 9:10 pm
You will meet the safe harbor if the extra income comes in December and you check to see that you meet the safe harbor requirements by the deadline for the fourth quarter estimated tax payment. Having to fill out a form to show the income and payments by quarter is part of that, which is the simplest way to be sure you do not owe a penalty.
I don't think we are disagreeing on the facts on how to avoid the penalty...........just the terminology. My experience is that the term safe harbor is generally used for equal quarterly payments to meet the 100 (110)% of last yr tax or 90% of current yr tax rules. The much more complex
F2210/Sch AI is not generally put in that category although it will avoid the penalty if you qualify. http://blogs.hrblock.com/2016/03/14/avo ... t-penalty/

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Spirit Rider » Sun Aug 13, 2017 10:01 am

I agree, terminology is always subjective.

The IRS does not use the term safe harbor in Form 1040/2210 Instructions or Publication 505. Most people routinely consider the following as annual underpayment penalty safe harbors, even though the IRS refers to them as exceptions:
  1. You had no tax liability in the previous year.
  2. Your underpayment < $1000.
  3. You pay 90% of current year tax liability
  4. You pay 100% (110% if AGI >= $150,000) of the previous year's tax liability
How/when you pay the annual tax liability are subject to other rules. Withholding by default is considered to be treated as equally received during the year unless elect otherwise on Form 2210.

To use the short method your estimated tax installments must be equal, otherwise you must use the regular method. If your your income is lumpy especially at the end of the year, you can use the annualized income installment method.

I don't remember hearing the equal installment method being referred to as a safe harbor.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by FactualFran » Mon Aug 14, 2017 2:03 pm

kaneohe wrote:
Sat Aug 12, 2017 8:46 pm
Safe harbors require equal quarterly payments. If you are really paying estimated taxes as OP suggests, if you adjust at end of yr,
the payments won't be equal so you won't meet safe harbor. You get off the hook as suggested in previous posts by the F2210-AI route
or if you do withholding, instead of estimated payments.
Equal quarterly payments are not required with the safe harbor of the withholding and quarterly payments being at least 100% of the amount of income tax for the previous year (with the percentage being other than 100% for some). The IRS would not complain if a taxpayer paid the entire safe harbor amount by the due date of the first quarter and made no other quarterly payments.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by oldcomputerguy » Mon Aug 14, 2017 2:21 pm

S17C wrote:
Sat Aug 12, 2017 1:48 am
Fidelity's mutual funds for Total U.S. Stock Market and international will pay a hefty distribution in December 2018. Each around $0.97 per share in dividends and $0.30 per share in capital gains.
How do you know this? These funds haven't even made their December 2017 distributions yet, much less anything for 2018. Your crystal ball must be working a whole lot better than mine. Granted that the corresponding distributions for December 2016 were in the ballpark of what you state, that's no guarantee that this year will be close to that, and certainly no guarantee of an event over a year in the future.
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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by Katietsu » Mon Aug 14, 2017 2:45 pm

These points have already been mentioned by others but to suumarize:...Paying in January 2019 for a December 2018 distribution is allowed. However, if you do not meet the previously outlined safe harbor, then you will need a 2210 to avoid interest and penalty. Completing a 2210 in this situation can be simple if, for instance, all your other income is the same every month, eg, a $3000 pension only. However, otherwise, you will need to calculate exactly how much taxable income was received in each quarter of the year. For many of us, this is a huge hassle. If this was my plan, I would start in January 2018 keeping track of all income by date as the year goes. You will also need to differentiate qualified dividends and cap gains. And id you are getting a W-2, you will need to identify the portion of the gross wages that are taxable, ie not going to exempt things like health insurance and retirement. Then you have to hope that your 4 quarter calculations actually add up to your total income.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by kaneohe » Mon Aug 14, 2017 2:49 pm

FactualFran wrote:
Mon Aug 14, 2017 2:03 pm
kaneohe wrote:
Sat Aug 12, 2017 8:46 pm
Safe harbors require equal quarterly payments. If you are really paying estimated taxes as OP suggests, if you adjust at end of yr,
the payments won't be equal so you won't meet safe harbor. You get off the hook as suggested in previous posts by the F2210-AI route
or if you do withholding, instead of estimated payments.
Equal quarterly payments are not required with the safe harbor of the withholding and quarterly payments being at least 100% of the amount of income tax for the previous year (with the percentage being other than 100% for some). The IRS would not complain if a taxpayer paid the entire safe harbor amount by the due date of the first quarter and made no other quarterly payments.
Very true! If you pay faster than necessary, IRS certainly won't complain. Just didn't want anybody to get the idea that as long as you paid the required amount by yr end, you were in the clear. But good point.....will have to hone my writing skills/certainly couldn't be a lawyer :happy

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by House Blend » Mon Aug 14, 2017 3:56 pm

It's worth remembering that failing to meet a safe harbor need not be a big deal.

For example, let's suppose you're in the OP's shoes. A big, unanticipated $6,500 cap gain distribution occurs in December 2018. As a result, you pay an extra $1000 in estimated tax on 1/15/19 that you had not planned for.

And let's say that this payment, if it had been evenly spread over the four quarters, would have just barely met a safe harbor.

I know it is difficult for many timid Bogleheads to imagine, but let's be wild and crazy just this once--we will not bother filing Form 2210. Instead we will let the IRS assess the interest penalty for us. (Is that living on the edge, or what? Once you cross this line there's no telling what might happen next. Maybe we'll be tossing bottles into the recycling bin instead of claiming the deposit.)

It will go something like this: you should have paid $250 on 4/15/18, 6/15/18 and 9/15/18, and 1/15/19, instead of all at once. So from their point of view you have payments of $250 that were 9, 7, 4, and 0 months late, or about 20 months of being $250 late. I believe the current interest rate is 4%, so the penalty would be about $250 x .04 x 20 / 12 = $16.67.

I think most people would rather pay $16.67 than have to figure out how to use the annualized installment method on Form 2210 to avoid a penalty. Probably the enrolled agent they pay to do their taxes would charge more than that. A good one would suggest to pay the interest and not bother with Form 2210.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by kaneohe » Mon Aug 14, 2017 4:50 pm

House Blend wrote:
Mon Aug 14, 2017 3:56 pm
..............................................................................
I know it is difficult for many timid Bogleheads to imagine, but let's be wild and crazy just this once--we will not bother filing Form 2210. Instead we will let the IRS assess the interest penalty for us. (Is that living on the edge, or what? Once you cross this line there's no telling what might happen next. Maybe we'll be tossing bottles into the recycling bin instead of claiming the deposit.)

.............................................................
Once you cross this line, one possibility is that you may decide not to pay estimated taxes at all.........just settle up in April. I know a fellow who
did (does) that. When I encouraged him to do the estimated taxes , he was skeptical claiming he had never been penalized so why should he change.
Braver than me for sure. But you have a good point that it's not the end of the world.

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Re: When to pay estimated taxes on mutual fund distributions in December 2018?

Post by The Wizard » Mon Aug 14, 2017 5:43 pm

kaneohe wrote:
Mon Aug 14, 2017 4:50 pm
House Blend wrote:
Mon Aug 14, 2017 3:56 pm
..............................................................................
I know it is difficult for many timid Bogleheads to imagine, but let's be wild and crazy just this once--we will not bother filing Form 2210. Instead we will let the IRS assess the interest penalty for us. (Is that living on the edge, or what? Once you cross this line there's no telling what might happen next. Maybe we'll be tossing bottles into the recycling bin instead of claiming the deposit.)

.............................................................
Once you cross this line, one possibility is that you may decide not to pay estimated taxes at all.........just settle up in April. I know a fellow who
did (does) that. When I encouraged him to do the estimated taxes , he was skeptical claiming he had never been penalized so why should he change.
Braver than me for sure. But you have a good point that it's not the end of the world.
I did something similar a few years back, a good-sized Roth conversion in December followed by a single estimated tax payment to cover it in January. I didn't run any numbers on safe harbor nor did I bother with form 2210.

Maybe I just lucked out.
Or maybe the IRS software doesn't really detect certain transgressions.
Or maybe the IRS allows a certain threshold since they have bigger fish to fry.

Assuming I don't do any part-time work the remainder of 2017, I'll do another such conversion and estimated payment this December. And again, I shall ignore form 2210...
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