Sdi Productions | E+ | Getty Images
Even if you retire and skip your 2022 taxes, a discreet year-end strategy can help you avoid late penalties, experts say.
Taxes are paid when you receive income, so you must either withhold taxes from your income or pay the estimated amount of tax payable on a quarterly basis. If you haven’t withheld sufficient taxes from your Social Security, pension, or other income, you’ll have to pay taxes quarterly.
However, if you miss your quarterly tax payments, you can now correct that mistake through year-end Minimum Dividends (RMD) starting at age 72. If you turned 70½ before January 1, 2020, your RMD may have already started.
Details from Personal Finance:
There’s still time to cut your tax bill in 2022 with these last-minute moves
21% of investors believe they do not pay fees.Here’s Why They’re Wrong
These are the 10 best used cars for your money
Certified financial planner Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Fla., says withholding is “going back and fixing the problem” because there’s little chance of undoing it in the tax world. She is also a CPA.
For example, if you need to withdraw $75,000 from your personal retirement account by the end of the year to meet your 2022 RMD, you can estimate your total federal and state tax liability for that year and deduct the funds from your RMD. . If he estimates that he still owes $5,000 in taxes to meet his estimated tax obligations each quarter, he will withhold that amount and remit it to the IRS, and the rest of his $70,000 withdrawal. can receive
“People don’t know this, but by sending the entire RMD to the IRS, you can get 100% withholding,” said Collado.
This can be completed by December 31st and is considered “proportional” on a quarterly basis. That means it counts as a timely payment made by each deadline, explained JoAnn May, his CFP and CPA who founded Forest Asset Management in Berwyn, Illinois. “It’s a great thing I do for a lot of my older clients,” she said.
How to avoid estimated quarterly tax penalties
Generally, the lesser of 90% of your 2022 taxes or 100% of your 2021 invoice if your adjusted gross income is less than or equal to $150,000 (110% if your adjusted gross income is greater than $150,000) throughout the year. By paying, you can avoid federal penalties.
You can make payments based on your quarterly earnings, or you can review last year’s tax liability on your 2021 tax return and divide the number into four equal payments.
Pay at least these amounts by each due date to avoid incurring late penalties. His first three deadlines for this year’s quarterly estimated tax payments are his April 18th, June 15th and September 15th, and the remaining deadlines for the fourth quarter are his January 17th, 2023. is.
However, just because you made a payment on last year’s debt doesn’t mean you’re exempt from your tax liability in 2022. Working with a tax professional may help you determine exactly how much you need to put aside before you file your tax returns in April.
