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Since the subject has been brought up, how does one deal with investment income that is not predictable? You can estimate IRA withdrawals, pension and social security very accurately. You can estimate interest income and regular dividends fairly accurately. But capital gains are at the mercy of the market. You cannot estimate what capital gain distributions will be from mutual funds. You also cannot estimate what capital gains (or losses) you will take during the year since this will depend on market conditions.

Let's start with the better scenario: your income this year is higher than your income last year. In this case all you have to do with respect to estimated tax is make four equal timely payments that total last year's tax. (This assumes last year's AGI was under $150,000.)

If you learn later in the year that your income is going down, you can recalculate your estimated tax, take into account those ES payments you've already made, and reduce your remaining payments.

Phil Marti
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