Use of 1040-ES to Supplement 1099-R Withholding?

[njoracle]

My 1099-R withholds taxes in the mid 4 figure range. I can go online and
adjust the amount withheld on a monthly basis.

For 2013 I anticipate a doubling of the amount of tax due because of
some short term capital gain. The amount of the gain and the date depend
on when I sell some securities and at this time, I can't predict when
that will be except for the amount already sold.

1. One way of paying the additional tax due over the amount being
withheld is to file a 1040-ES on a quarterly basis and pay the
additional amount due (over the amount being withheld on the 1099-R)
based on the date and amount of the sale.

2. The other way to do it is to adjust the amount being with held on the
1099-R monthly to take care of the extra amount due as a result of a
sale in that month. That should, I think, eliminate the need to file a
1040-ES on a quarterly basis?

3. I could wait until January 15, 2014 and file a 1040-ES to cover the
entire additional amount due over and above what is being withheld on my
1099-R. However, I wonder if there is a penalty because I did not pay
when I incurred the capital gain?

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[John Levine]

I gather that 1099-R withholding is treated like W-2 withholding, in
that it's considered to be done evenly over the year regardless of
when it actually happened. So long as the amount withheld is within
$1000 of what you owe or you meet some other more complicated
requirements, there's no penalty. See the instructions for form 2210
for much, much, more detail.

http://www.irs.gov/instructions/i2210/ch01.html#d0e151

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[removep...@yahoo.com]

On Wednesday, May 22, 2013 10:45:31 AM UTC-7, njoracle wrote:

> For 2013 I anticipate a doubling of the amount of tax due because of
> some short term capital gain. The amount of the gain and the date depend
> on when I sell some securities and at this time, I can't predict when
> that will be except for the amount already sold.

> 1. One way of paying the additional tax due over the amount being
> withheld is to file a 1040-ES on a quarterly basis and pay the
> additional amount due (over the amount being withheld on the 1099-R)
> based on the date and amount of the sale.

That's possible. The calculations are a bit tedious though, and you have to file long form 2210 with your tax return. I suppose you can just send 25% of your capital gain in each quarter -- assuming that is your tax bracket. From bankrate.com: 25% Single $36,251 - $87,850, MFJ $72,501 - $146,400. You still have to file long form 2210.

> 2. The other way to do it is to adjust the amount being with held on the
> 1099-R monthly to take care of the extra amount due as a result of a
> sale in that month. That should, I think, eliminate the need to file a
> 1040-ES on a quarterly basis?

Yes, I like this approach best. But what if the your 1099-R monthly gross is less than the additional tax due. I mean what if you have $500,000 in capital gain, whereas your pension/IRA distribution is just $10,000 a month before taxes.

> 3. I could wait until January 15, 2014 and file a 1040-ES to cover the
> entire additional amount due over and above what is being withheld on my
> 1099-R. However, I wonder if there is a penalty because I did not pay
> when I incurred the capital gain?

Yes, there is a penalty because the Q1 estimated payment was not received on time, the Q2 not on time. The Q1 penalty is 3% a year on the underpayment from 4/15/2013 to the date the amount is paid. The Q2 penalty is from 6/15 to when you pay, so it will be less, and Q3 and Q4 penalty will be less. The currently penalty rate is 3% a year.

Second, can you take advantage of prior year safe harbor? If your total tax bill in your 2012 return was say some small number like $100, then you only have to pay $110 through withholding or EQUAL estimated on-time payments. You can pay the difference on 4/15/2014 and have no penalty. So if you owe $30,000 in taxes, just pay the remaining $29,890 on 4/15/2014 and there is no penalty because of prior year safe harbor.

Also, don't forget about state taxes.

[jay_wi...@alumni.pitt.edu]

On Wednesday, May 22, 2013 10:45:31 AM UTC-7, njoracle wrote:

> 2. The other way to do it is to adjust the amount being with held on the 1099-R monthly to take care of the extra amount due as a result of a sale in that month. That should, I think, eliminate the need to file a 1040-ES on a quarterly basis?

So long as tax is withheld anytime during the tax year, it doesn't matter when, it is considered timely. This is different from estimated tax payments that are expected to be paid roughly in the same time frame that the income occurred.

So if you have the ability to control the amount of tax withheld right up to December (and you have enough income that it covers the tax that you need to withhold) that is probably a better way to manage tax payments than by paying estimated taxes.

As an example, in 2011 I found I had severely underwithheld so in late December took an IRA distribution with 90% federal and 9% state tax withheld (ratio required by the administator rules).

Jay Wiedwald
Oakland, CA

[Wit]

jay_wi...@alumni.pitt.edu wrote:
> On Wednesday, May 22, 2013 10:45:31 AM UTC-7, njoracle wrote:
>> 2. The other way to do it is to adjust the amount being with held on the 1099-R monthly to take care of the extra amount due as a result of a sale in that month. That should, I think, eliminate the need to file a 1040-ES on a quarterly basis?
>
> So long as tax is withheld anytime during the tax year, it doesn't matter when, it is considered timely. This is different from estimated tax payments that are expected to be paid roughly in the same time frame that the income occurred.

Aha. "it doesn't matter when, it is considered timely" is the key. I can
start now to increase my withholding to cover the first sale. I will
increase the withholding again when I make future sales. Thanks for the tip

[Phil Marti]

On Wednesday, May 22, 2013 11:14:02 PM UTC-4, Wit wrote:

> Aha. "it doesn't matter when, it is considered timely" is the key. I can
> start now to increase my withholding to cover the first sale. I will
> increase the withholding again when I make future sales.

Far easier would be to make sure that at least the amount of your 2012 total tax is withheld during 2013. Then you can wait until 4/15/2014 to pay the rest of it. See Publication 505.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

[Don Priebe]

This whole thread is about how to increase your withholding to cover the
tax on some large stock sales. The title says 1099-R withholding, so we
assume that the stocks are in a retirement plan. As such, there is NO
tax impact when they are sold. There are no capital gains taxes to be
paid - EVER. It's all going to be ordinary income, WHEN YOU WITHDRAW
IT, not when the sales are made.

Don EA in Upstate NY

[njoracle]

Phil Marti wrote:
> On Wednesday, May 22, 2013 11:14:02 PM UTC-4, Wit wrote:
>
>> Aha. "it doesn't matter when, it is considered timely" is the key. I can
>> start now to increase my withholding to cover the first sale. I will
>> increase the withholding again when I make future sales.
>
> Far easier would be to make sure that at least the amount of your 2012 total tax is withheld during 2013. Then you can wait until 4/15/2014 to pay the rest of it. See Publication 505.
>
> Phil Marti
> VITA/TCE Volunteer
> Clarksburg, MD
>

Great. Covered on page 24, 2b of the chart. I just need to increase my
withholding enough to make sure it is equal to or greater than my 2012
total tax. Thanks for the tip.

[njoracle]

Don Priebe wrote:
> This whole thread is about how to increase your withholding to cover the
> tax on some large stock sales. The title says 1099-R withholding, so we
> assume that the stocks are in a retirement plan. As such, there is NO
> tax impact when they are sold. There are no capital gains taxes to be
> paid - EVER. It's all going to be ordinary income, WHEN YOU WITHDRAW
> IT, not when the sales are made.
>
> Don EA in Upstate NY
>

These stocks are NOT in a retirement plan so there is a tax impact.
Hopefully, some of the sales can be held off until the long term capital
gains rate applies.