When are tax payments due?
I made a sizeable Roth conversion in 2010. When is the Federal and NJ State tax due on this?
Included in the usual quarterly estimated tax payments?
Or after November 15 when it can still be reconverted back?
Is there a published ruling on this?
Thanks.
Permalink Submitted by Alan Spross on Tue, 2010-11-30 22:21
There are two different situations here depending on whether you defer the conversion income or opt out and report it all in 2010.
1) If you report it all in 2010, then you probably need to meet either the 100%/110% safe harbor for equal quarterly estimates based on 2009 tax liability OR the 90% safe harbor based on 2010 tax liability. If you don’t, then you could file a 2210 AI showing the actual quarter all income and deductions were incurred to reduce the underpayment penalty due if the conversion is done late in the year.
2) If you defer the 2010 conversion to 2011, it has no affect on your 2010 taxes, however you would then have to meet one of the safe harbors for 2011 and 2012. And if you needed to file a 2210 AI for 2011 or 2012, you would probably have to show each year’s conversion income in the first quarter because it was deferred from a prior year (2010).
And NJ may have it’s own underpayment rules, and I am not familiar with them.
If you do not know yet whether you are going to defer the income, partly or fully recharacterize the conversion or some combination thereof, you would need to protect yourself for either contingency by making sure you meet a safe harbor each year. If you overpay in 2010, you can then have the excess applied in 2011 if you wish, either starting with the 1st quarter OR ratably for each quarter.
At least the underpayment interest rate is currently quite low, so it may not be worth filing a 2210 AI.