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URL:  https://boards.fool.com/actually-it39s-easier-to-just-meet-a-safe-34296661.aspx

Subject:  Re: oops...estimated taxes? Date:  9/17/2019  2:29 AM
Author:  ptheland Number:  129573 of 129721

Actually, it's easier to just meet a safe harbor, and be prepared to pay any taxes owed by April 15 of 2020.

While calculating a safe harbor is pretty easy, it's not always the right way to go. It works well when your income is rising from the prior year to the current year. But when your income falls, the safe harbors generally have you paying in too much in taxes.

Perhaps in 2018 you changed jobs. You might have received a payout of unused vacation pay from the former employer. And let's say you got a signing bonus from the new employer. So you've got two sources of one-time income.

Now for 2019, you have a full year with your current employer. That could easily leave you with a lower income than 2018. Add in a stock sale and for 2019 and you might be better off making a payment based on the annualized income method rather than trying to meet a safe harbor based on the prior year tax.

Another common way would be to retire near the end of 2018. For 2019, your income is down significantly because you're not working. Same thing happens if you are unemployed for several months in 2019. You might not want to use a safe harbor if that involves paying in significantly more taxes than you will eventually owe. That's when making a good estimate of your taxes becomes important.

--Peter
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