IRS Safe Harbor

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IRS Safe Harbor

Post by sergio »

Part of my income is W2 wages, and another part is quarterly distributions (profit sharing due to my ownership in the company).

Last year 2018 I tried to do withholdings + quarterly payments and got dinged $29 for a Qtr2 underpayment. I also got dinged $11 in my state return and had to mail in a paper copy :oops:

This year I already made a quarterly guesstimated payment for Q1. However, I just remembered that one of the IRS safe harbors is paying 100% of 2018 tax. Since my income (and tax) will be higher in 2019, going for the safe harbor seems far easier than messing around with quarterly estimated taxes. I'll set aside a healthy amount in a high-yield savings account and pay the difference when I file in 2020.

I've already withheld money for taxes and made a quarterly payment in 2019. Can I simply take my 2018 tax, subtract from that how much I've paid YTD in 2019 (withholdings + the quarterly payment), and withhold that over my remaining 2019 paychecks?

The part that confuses me is if the quarterly payment I already made will screw things up.
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Re: IRS Safe Harbor

Post by codedude »


Your plan is good unless your last years AGI was I ver 150000. Then you need to pay atleast 110% of last years tax in 2019 and not 100% for safe harbor. You can also pay 90% of 2019 tax.

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Re: IRS Safe Harbor

Post by MP123 »

The quarterly estimated payment you already made will add together with any future quarterly payments for this year and any taxes withheld. As long as that is at least 100% (110% if AGI > $150k) of last years taxes then you're in a safe harbor.

The safe harbor rule is definitely something you want to use when your income is increasing year to year. No matter how much you make this year no underpayment penalties as long as you pay at least as much as last year's taxes. Then sort it out and pay what's due next April.
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Re: IRS Safe Harbor

Post by kaneohe »

You should be fine if you pay the safe harbor of 100% (or 110%) of last yr taxes. The withholding part is fine since it is considered
paid timely no matter when paid. IRS wants estimated payments paid in equal quarterly payments. However if you pay estimated tax in Q1 only, you are paying faster than that, so you will be ok since each payment is on time or earlier than needed. You can fill out F2210 to convince yourself ........and perhaps IRS.

If you had made a single estimated payment in Q2, you might have a problem since Q1 will be lower than needed.
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