Invite ye felawes and frendes desirous in gold to enter the gates of Shrewd'm, for they will thanke ye later.
- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 5
After two years (first 2 yrs of retirement) of paying penalties for my taxes I'm actually owed money on my federal return. Haven't done the state but I'd imagine the same to be true. I find taxes to make no sense in many situations and the tedious nature of them causes me to hate looking at that stuff. Two years ago I got hit with a big penalty in my first year of retirement because I overlooked how much interest you can make on holding house money in accounts. Last year I would have been ok but after doing a Roth conversion I was going to pay taxes out of another account and forgot about it.
This year I started off with early payments and tried to track things more closely. Next year if our income is about the same I might just pay the safe harbor amount to avoid any surprises.
This is also the first year I decided to do them myself with FreeTaxUSA. Prior to 2025 I had to do taxes in multiple states and had a CPA that would do it for me at a very reasonable rate. The only thing I have to double check is whether I have any carryover losses from last year (I doubt it).
Although I've always known it but it is definitely important to consider long term investments to avoid short term gains (unless you are into some kind of day trading, etc.).
Either this year or by the end of 2027 I will finish off my inherited father's IRA. Well before the 10 yrs but I wanted that done before social security starts to avoid any issues with taxes.
Rich
No. of Recommendations: 2
because I overlooked how much interest you can make on holding house money in accounts
They send you a 1099-INT. You just didn't put that in your 1040 form.
This year I started off with early payments and tried to track things more closely. Next year if our income is about the same I might just pay the safe harbor amount to avoid any surprises.
I tried predicting what my withholding should be for the first few years after retiring. Every year it was way off. One year too much, so I reduced it the next year. The next year was way way off in the other direction. Repeat, repeat.
Never got close to right. I either owed a whole bunch or got a huge refund.
Then I found out about the trick. The simplest way to handle it.
1) Figure out your Safe Harbor amount. The previous year's tax or 90% of this year's tax.
2) In early- or mid-December, take a withdrawal of that amount from your IRA and have 100% of it withheld.
This works especially well if you are taking RMD that you don't really need.
Or just an RMD like from an inherited IRA.
The first year I did this I was not 100% sure so I called the broker and talked to someone in their "retirement account department". He said, "Yeah, a lot of people do that. it's not a big deal. Quite common."
No. of Recommendations: 4
After two years (first 2 yrs of retirement) of paying penalties for my taxes I'm actually owed money on my federal return.
I got in the habit really quickly (after year 1) of just paying what I owed the previous year. If I end up owing more than that, there is no penalty because part of the rule is to pre-pay at least as much as you owed the previous year (unless you know you will owe less). So I already did my "estimated tax" payment by paying what I owed in 2024. If it turns out to be more in 2025, at least there won't be a penalty. We'll see.
No. of Recommendations: 0
Even if you underestimate and owe more it's generally not a big deal, if you are reasonably close.
The penalty is calculated on the difference between what you had withheld and the lowest safe harbor amount. Reduced by the $1000 threshold.
Turbotax will figure your penalty and include it in what you owe.
But you can tell Turbotax to ignore that and let the IRS figure it out and send you a letter. Which they might not actually ever get around to. ;-)
No. of Recommendations: 2
I got in the habit really quickly (after year 1) of just paying what I owed the previous year. If I end up owing more than that, there is no penalty because part of the rule is to pre-pay at least as much as you owed the previous year (unless you know you will owe less). So I already did my "estimated tax" payment by paying what I owed in 2024. If it turns out to be more in 2025, at least there won't be a penalty. We'll see.
That works depending on your income.
he safe harbor estimated tax has three components, which we’ll outline here.
Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. The IRS will not charge you an underpayment penalty if:
You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or
You owe less than $1,000 in tax after subtracting withholdings and credits
This rule is altered slightly for high-income taxpayers. If the on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.
No. of Recommendations: 0
"This is also the first year I decided to do them myself with FreeTaxUSA."
Also do taxes at home, but I just use a pen, calculator, and the IRS
workbook. They're not complicated, but schedules B and D as well as 1040 are filed, so they are not basic. A bit of a pain in the butt, but not hard by any means.
I track everything financial thru the year, just on paper. Will know how much tax has been paid to Fed and State, as well as income from
basically 4 sources. Have calculated/guessed how much to have withheld in taxes, each month, and the guesses have been accurate since retiring in 2018. Like others here, manage the income to stay below IRMAA and NIIT ( if NIIT is still a thing, IRMAA has a lower
threshold, so just concentrate on staying under that ).
AARP has a free tax calculator. Last year, if I remember right, the calculator was updated with the 2025 tax rules by June or so. I would do a checkup every couple of months, but their tax calculator was accurate.
How was FreeTaxUSA to work with ?
I used FreeFillableForms on IRS website last year, but I think that was removed as an option ( tax prep companies must have made a nice
campaign contribution to TPTB, lol )
