Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Underwithholding penalty is essentially interest on the unpaid taxes. Other than the pain of writing a large check to the IRS there are no additional issues.

Thank you for your clear explanation. TurboTax reported the penalty was about $25, and I was wondering why it used the "about" terminology, rather than giving a specific number.

The consequence that most concerns me is that the IRS might decide to compel me to have dividend-payers withhold taxes on dividends payable. My investing strategy incorporates reinvesting dividends, so that consequence would be inconvenient. Do I need to worry about this consequence?

In my particular case, I converted a Traditional IRA to a Roth IRA in 1998. I elected to spread the taxable amount over FOUR years (which was an option in 1998); however I got it into my head that I spread the taxable amount over THREE years. When I calculated my withholding requirements for Tax Year 2001, I neglected to include the income resulting from the final year of the IRA conversion. It wasn't malice. It was just inattention to detail. If necessary, I'd like to be able to argue that my underwithholding was due to my misunderstanding of how to handle a situation that no longer exists and therefore withholding federal income taxes on dividends payable is inappropriate.

David Jacobs
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.