Taxes Due When Spouses Convert Using Different Options
Hello ,
Beginning to slowly convert now that you folks have kindly educated me on many great issues and strategies . Still have a few qts on when to pay the taxes . Both spouses will convert with each choosing different options .
1. If $ are converted for each spouse in 1 st quarter of 2010 , are taxes due on only 1 ( not both ) spouses sometimes before the 2010 filing date ?
2. If the 2 spouses co own a small business and normally pay quarterly estimates , must they pay conversion taxes in the quarter ( or quarters ) they convert or can they wait until filing time ?
3. For the spouse electing the 2 year conversion option , when would they pay the ’11 and ’12 taxes due ?
4. Is there conflict with any of these tax due issues if each spouse converts different amts in 1 st quarter but a decision has not been made on which spouse will choose the 2 year income option?
Hope this finds everyone warm and safe .
Thanks
Newt
Permalink Submitted by Alan Spross on Fri, 2010-02-12 20:11
1) If they paid quarterly estimates, they will avoid any underpayment penalty by just paying quarterly estimates, each being 25% of their actual tax liability for 2009. This avoids penalty but they will owe taxes in April, 2011 since their actual tax bill will be higher due to the conversion for the spouse that opts out of the deferral. No taxes will be due for the spouse using the two year deferral.
2) They can wait until they file. If they meet the safe harbor, they will owe more, but be exempt for any underpayment penalty.
3) For the income of the spouse deferring taxes, they would still use the safe harbor by paying quarterly estimates equal to 25% of their 2010 tax liability for 2011 and 25% of their 2011 tax liability for 2012. These amounts must be increased by another 10 to 27.5% if their AGI exceeded 150,000 in the prior year.
4) No conflict because paying the quarterly estimates is based on the prior year tax liability and will eliminate any penalty, but there could still be a large amount due upon filing. Paying the quarterly estimates eliminates the need to be concerned with how much is converted in each quarter.
In 2013 if there is no conversion income, paying estimates on the prior year of 2012 when there was conversion income will result in too much being paid in. For that year only, taxpayer should change over to paying at least 90% of the current 2013 taxes due since that will be lower and still serve as a safe harbor against penalties.