Unusual income requires unusual estimated tax payments -- or not?

Forum|Forum|2 years ago
March 21, 2024
1 reply
0 views

Self Employed. I just sold my business in Feb... so my annual 2024 income will be about 20x my 2023 (or normal). Should I still just pay 110% of my last years taxes for 2024.... Or do I have to pay more because of this unusual windfall so early in the year? Obviously, I'd love to just pay 110% above what I paid last year, and put the money I already KNOW I will owe next April 15 into a 12 month CD and keep the interest! Just.... don't want to get in trouble, since this "windfall" is so early in the year.

Best answer by RobertB4444

Being a higher income taxpayer is why you have to pay in 110% of what you paid last year in order to avoid penalties and interest. The IRS treats each year as a separate account and they know that you can't be perfect on your estimates - that's why they're called estimates - but they expect you to figure your payments to at least cover what you owed last year.

So yes, you can put the amount you will owe the IRS next year in a 12 month CD as long as you make that 110% payment and you will avoid penalties and interest. Just remember - 2025 will be based on the payments you owed for 2024 so you'll have to make big payments then to avoid penalties.

@Smallmfgrbizguy

DawnC

Employee

You should pay more to avoid underpayment penalties next year. TurboTax can generate corrected payment vouchers for next year.

Estimate next year's federal taxes

Estimate next year's state taxes

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

SmallmfgrbizguyAuthor

Hi Dawn! Thanks for the link, that was super helpful -- but using the TT link you recommended, it just says I only need to pay 110% of last year's taxes (since I made over $150K) even though next year I will then owe about 5x's what I owed last year! .... I'm confused because that's different than what you are recommending (that I should pay more to avoid penalties). Do you think TT is incorrect, or that I messed this up?

Obviously, I would love to keep the extra money I know I will owe (and put it into a 12 month CD earning interest). And... it appears TT supports this idea as being acceptable. But from your recommendation, I'm worrying maybe I typed the information in properly, or TT is wrong.

Thankyou for writing back!