Roth conversion tax penalty for under payment
We converted one client in November, 2017. He has a tax penalty due to underpayment. He was planning on paying the taxes on the conversion when he files taxes. Is there a way around this penalty? Are the taxes required to be paid by December? We don’t have clients paying taxes quarterly.
Permalink Submitted by Alan - IRA critic on Wed, 2018-04-04 21:06
For a taxpayer using only withholding for paying throughout the year, a penalty indicates that the total payments were inadequate to meet one of the safe harbors such as 100% of the prior year tax liability and the tax due is more than 1,000. The taxes are due by December if paid with withholding, however since this client’s taxable income is back loaded the penalty could be reduced by filing the annualized income installment method Form 2210 AI. Whether the cost and time to complete this form is worth the added effort or not depends on the amount of the penalty.