Sdi Productions | E+ | Getty Images
Should you’re retired and skipped your 2022 tax payments, you’ll be able to still avoid late penalties with an under-the-radar year-end strategy, experts say.
Since taxes are due as you receive income, you could withhold levies from earnings or pay quarterly estimated tax payments. You could owe quarterly taxes for those who didn’t withhold enough from Social Security, pensions or other income.
But for those who missed paying quarterly taxes, you’ll be able to correct that mistake through your year-end required minimum distribution, or RMD, which currently begins at age 72. RMDs could have already began for those who turned 70½ before Jan. 1, 2020.
More from Personal Finance:
There’s still time to cut back your 2022 tax bill with these last-minute moves
21% of investors don’t think they pay fees. Here’s why they’re fallacious
These are the ten best used cars for the cash
With few possibilities for a do-over within the tax world, the withholding is a “good little wild card to return and make things better,” said certified financial planner Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Florida. She can also be an authorized public accountant.
For instance, if that you must withdraw $75,000 from a person retirement account by year-end to satisfy your RMD for 2022, you’ll be able to estimate the yr’s total federal and state tax liability and withhold the funds out of your RMD. Should you estimated you continue to owed $5,000 in taxes to fulfill quarterly estimated tax obligations, you possibly can opt to withhold that quantity, remit it to the IRS and receive the remaining $70,000 withdrawal.
“People do not know this, but you possibly can have a 100% withholding” by sending your complete RMD to the IRS, Collado said.
You’ll be able to complete this by Dec. 31, and it’s considered “pro rata” for every quarter, meaning it counts as on-time payments made by each deadline, explained JoAnn May, a CFP and CPA who founded Forest Asset Management in Berwyn, Illinois. “That is a pleasant thing that I do for lots of my older clients,” she said.
Typically, you’ll be able to avoid federal penalties by paying, all year long, the lesser of 90% of your 2022 taxes or 100% of your 2021 bill in case your adjusted gross income is $150,000 or less (110% for those who made greater than $150,000).
You’ll be able to base payments in your income each quarter or check your 2021 return for last yr’s tax liability and divide that number into 4 equal payments.
By paying not less than these amounts by each of the deadlines, you will not incur late payment penalties. The primary three deadlines for quarterly estimated tax payments this yr were April 18, June 15 and Sept. 15, and the fourth-quarter balance is not due until Jan. 17, 2023.
Nonetheless, making payments based on last yr’s liability is not a guarantee you will not owe taxes for 2022. By working with a tax skilled, it might be easier to gauge exactly how much to put aside before filing taxes in April.