Estimated Tax Q - Safe Harbor the First 3 Quarters then Pay Q4 on Final Tax Owed?

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radmd35
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Estimated Tax Q - Safe Harbor the First 3 Quarters then Pay Q4 on Final Tax Owed?

Post by radmd35 »

I make 1099 income as an independent contractor and pay quarterly estimated taxes. For the easy safe harbor calculation based on prior year taxes, I make greater than $150,000 filing jointly, so would have to make payments that come out to 110% of the prior year tax. I'm reluctant to do this since I make enough such that it will basically be equivalent to giving the IRS a significant interest free loan. At the same time, I don't really want to have to do all of these calculations based on my income as I go in order to do 90% safe harbor based on the current year taxes, accounting for the complexities of self employment tax, medicare tax, deductions, etc.

One thing I thought of as a compromise between these two options would be to pay the 110% of last year's tax for the first 3 quarters, but then before paying Q4 after the new year starts, simply run my now-known final income through Turbotax quickly after it opens once the new year begins, having it calculate my owed tax, and then just subtract out the total I paid for the first three quarters and pay the difference for Q4. This way I could get as close to zero overpayment as possible.

Does this sound reasonable? I know it might not seem like that much of a difference, especially if I file relatively early anyway, but I'd rather have the piece of mind knowing that the ball is in my court in terms of me controlling all of my payments, rather than having to rely on the IRS in the end for whenever they decide to send the refund, in case it takes awhile or the IRS decides to delay it for whatever reason. Would I be correct to say that as long as I do the math correctly and am conservative about things, I shouldn't have an underpayment penalty for Q4 as a lower payment, since in the end the cumulative Q1, Q2, and Q3 payments will all have been overpayments, and everything should even out by Q4 if i do it correctly?
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cchrissyy
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Re: Estimated Tax Q - Safe Harbor the First 3 Quarters then Pay Q4 on Final Tax Owed?

Post by cchrissyy »

that sounds fine
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Eagle33
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Re: Estimated Tax Q - Safe Harbor the First 3 Quarters then Pay Q4 on Final Tax Owed?

Post by Eagle33 »

My spouse is commission based income & I'm retired. We also do the 110% divided by 4 of previous year taxes for the first 3 quarters. 4th quarter we adjust to bring total estimated payments to match the actual required for current year.
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murrays
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Re: Estimated Tax Q - Safe Harbor the First 3 Quarters then Pay Q4 on Final Tax Owed?

Post by murrays »

I read that approach from someone else and started doing my self. Yeah, I might be losing some interest by paying ahead a bit, but I doubt that’s more than a few 10s of dollars.

OTOH, I’m planning on cutting back on Roth conversions in 2026 and our taxes should drop to about a third of what they are now. At that point, I’ll need a new strategy.
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