Turbotax Calculated Tax Penalty

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
guslucas
Posts: 7
Joined: Thu Dec 15, 2011 12:20 am

Turbotax Calculated Tax Penalty

Post by guslucas » Sat Aug 01, 2020 4:16 pm

I have been using Turbotax for many years. This year I submitted my taxes on time on July 10,2020 but the program calculated I owed a $234 tax penalty. My taxes this year are almost same as last year. I am retired and took an RMD in Nov 2019 and also had a qualified charitable distribution of 5K$. I did underpay my 2019 taxes by 5K$ (did not withhold enough on the RMD because I assumed the QCD would cover it) but paid my full tax bill on July 10. Should I be be making quarterly tax payments to avoid a tax penalty when I do a QCD?

Savermom
Posts: 32
Joined: Wed May 20, 2020 12:32 pm

Re: Turbotax Calculated Tax Penalty

Post by Savermom » Sat Aug 01, 2020 4:18 pm

You have to have paid in (through withholding and/or estimated payments) the lesser of 90 percent of the current year’s tax or 100 percent of the prior year’s tax to avoid a penalty.

User avatar
arcticpineapplecorp.
Posts: 5613
Joined: Tue Mar 06, 2012 9:22 pm

Re: Turbotax Calculated Tax Penalty

Post by arcticpineapplecorp. » Sat Aug 01, 2020 4:21 pm

yep. there are safe harbor rules but it sounds like you were way over that. Generally the rule is any time your tax owed is going to be more than $1000, you'd want to pay ahead of time to avoid a penalty.

read more at the IRS's website:
Who Must Pay Estimated Tax

Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed...

Penalty for Underpayment of Estimated Tax

If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. 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
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Topic Author
guslucas
Posts: 7
Joined: Thu Dec 15, 2011 12:20 am

Re: Turbotax Calculated Tax Penalty

Post by guslucas » Sat Aug 01, 2020 4:41 pm

Thanks for the quick response! Bad assumption for the QCD on my part I guess. Should be safe for a tax penalty this year because my income will be reduced by 60K$ since there is no RMD this year. I'll remember to withhold enough from the RMD in 2021!

Post Reply