Do you make estimated tax payments quarterly? I find that as a W2 employee my withholdings are usually enough to get close by YE tax season- usually get a NY state refund and owe some Federal. But, with treasuries paying more interest than before leading to more untaxed income, I am thinking I should start looking into this. Do folks here make estimated payments? It's kind of unclear how much I need to make to avoid penalties. Obviously everyone's circumstances are different but just wondering how others look at this. Thanks!
Trending Content
| +53 | Looking for a Fund Manager to partner with to start a new fund. | 26 | 17h | |
| +34 | Law to Quant Pivot? | 10 | 5d | |
| +29 | How to destress at Pod HF? | 10 | 40m | |
| +23 | Starting Personal Account | 12 | 3d | |
| +19 | Hedge Fund WLB | 6 | 4d | |
| +18 | Any R course recommendations? | 14 | 1d | |
| +17 | Track Record Expectation For PM's | 22 | 4h | |
| +16 | Which Funds focus on timing the broad market rather than L/S individual equities? | 10 | 3d | |
| +15 | CRE Team at Credit Oriented Hedge Fund | 3 | 6d | |
| +15 | CRE Team At Credit Oriented Hedge Fund | 0 | 6d |
Career Resources
Based on the WSO Dataset, the topic of estimated tax payments, especially for individuals with additional untaxed income such as interest from treasuries, is indeed relevant. As a W2 employee, your withholdings typically cover the majority of your tax obligations. However, when you have additional income that isn't subject to automatic withholding, estimated tax payments become an important consideration to avoid underpayment penalties.
The IRS requires individuals to pay taxes as they earn income throughout the year, either through withholding or estimated tax payments. If you expect to owe $1,000 or more when your return is filed, you should make estimated tax payments. The goal is to pay at least 90% of your current year's tax liability or 100% of the tax shown on your previous year's return (110% if your adjusted gross income is more than $150,000) to avoid penalties.
Many individuals in the finance industry, particularly those with variable income streams such as bonuses, interest, dividends, or capital gains, find it prudent to make estimated payments. The process involves calculating your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
To avoid penalties, you can use the IRS Form 1040-ES, which includes a worksheet to help you estimate your tax for the year and figure out the required payments. It's also wise to consult with a tax professional who can provide personalized advice based on your specific financial situation, including the impact of additional untaxed income like higher-paying treasuries.
Remember, tax planning is a crucial aspect of personal finance management, especially for those in high-income brackets or with diverse income sources. Regularly reviewing your tax situation and adjusting your withholdings or estimated payments as needed can help you manage your tax liability effectively and avoid surprises come tax season.
Sources: 10% Tax Cuts Coming Soon?, You Talkin’ Bout Taxes? | The Daily Peel | 12/2/22, How much have you saved?, The insanity of the US tax code: Bad Laws and Predictable Consequences, Most Mundane Shit
There are a lot of potential special cases but assuming you work in finance and make > 150k AGI to avoid penalties you probably need to have made estimated payments for 90% of the tax or 110% of the previous year's. Assuming the tax withholdings on your employment income is approximately the amount of tax due from those earnings you may not need to make any further payments if your employment income is more than 10% greater than the previous year's total income or interest from treasuries + capital gains (although LT capital gains are taxed at lower rates) is < 10% of your total income. Even if you don't strictly meet this criteria the total amount of penalty may be pretty modest as underpayments are subject to something like a 3% above market interest rate (so 8-9% in recent years) so unless you have a lot of interest income (especially relative to employment income) I wouldn't sweat the estimated tax payments too much. Making quarterly payments for 30% of interest + capital gains income may also likely be sufficient.
Not professional advice but according to my understanding as a very approximate example 500k in treasuries may give ~25k interest income which should be at most ~10k federal tax. Assuming that is entirely underpaid the average underpayment duration would be like 8 months (because estimated taxes are April, June, Sep, Jan and you pay in April) so maybe ~9% interest rate becomes ~ 6% penalty ~ $600 (2/3 market interest rate + 1/3 above market penalty) of which arguably only the 1/3 above market part ~ $200 should be considered a "real penalty".
Omnis amet distinctio fugiat possimus harum officia voluptas adipisci. At libero fugiat occaecati illo non non. Et reprehenderit ipsa voluptas nostrum nisi est sunt eaque. Et earum perferendis voluptatem in ratione sed.
Facere et qui ut vel nemo architecto qui ut. Omnis illo accusantium nam facere voluptas magni. Laborum voluptatibus sint ut accusantium alias pariatur eius. Veniam ut sed eveniet qui repudiandae odit. Voluptas ex aut inventore dolor maiores debitis a rerum.
Dolores consequatur perspiciatis iusto impedit. Aut delectus consequatur eos cum.
Eligendi nisi corporis quis repellendus eos reprehenderit vel dolorem. Fugit iure deserunt possimus. Consequuntur et quo doloribus ut modi. Asperiores impedit dolorem cupiditate et. A provident totam voluptates autem et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...