Q & A
What are the rules for making estimated tax payments?
Full question: I have been getting conflicting opinions about when and how to pay quarterly estimated tax. I receive Social Security and a pension income. In December, I take a required minimum distribution (RMD) from my IRA. One bit of advice says at the first of the year, I should calculate my total expected taxable yearly income (Social Security, pension, dividends and RMD), estimate the taxes that would be due, then divide by four and make four equal payments during the course of the year.
The other advice seems to be saying that I need not pay quarterly tax, but instead have the IRA custodian simply withhold the total yearly estimated tax in one lump sum from the RMD. I’ve asked a few friends what they do, and some do the former, some the latter. What’s correct?
Answer: As far as I can tell, you can proceed either way: Make certain there is enough money withheld to satisfy all the taxes, or make the proper tax payment quarterly and at the end when it’s time to file. Then make up any deficiency prior to the file date closing. From what you are telling me, it doesn’t appear that you will have a substantial tax payment, but it must be made on time.
Source: Bruce Williams, Smart Money (via Herald and News) – April 6, 2014
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