Strategize Now to Avoid Unpaid Quarterly Taxes Before Year-End for Retirees

Retirees who have not paid their 2022 taxes can still avoid late penalties by utilizing a year-end strategy that is not widely known, according to experts.

Taxes must be paid as income is received, so it is necessary to withhold the appropriate amount from earnings or make quarterly estimated tax payments. If not enough is withheld from Social Security, pensions, or other income, then quarterly taxes may be due.

If you have neglected to pay your quarterly taxes, you can make up for it with your year-end required minimum distribution (RMD). This is mandatory for those who have reached the age of 72, and may have already begun for those who turned 70½ before the start of 2020.

It's not too late to lower your 2022 tax bill with some last-minute strategies. Surprisingly, 21% of investors don't think they pay fees, but they are mistaken. If you're looking for a good deal on a car, these are the top 10 used cars for the money.

Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Florida and a certified public accountant, noted that the withholding is a beneficial way to go back and make corrections in the tax world, as there are few opportunities for a do-over.

If you need to take out $75,000 from an individual retirement account by the end of the year to meet your RMD for 2022, you can calculate the amount of federal and state taxes you owe and take that amount out of your RMD. For instance, if you think you owe $5,000 in taxes for quarterly estimated tax payments, you can choose to take out that amount, send it to the IRS, and receive the remaining $70,000 withdrawal.

Collado mentioned that it is possible to have a full withholding of your RMD by sending the entire amount to the Internal Revenue Service. This is something that many people are unaware of.

JoAnn May, a CFP and CPA who founded Forest Asset Management in Berwyn, Illinois, has stated that this task can be completed by December 31st and will be considered "pro rata" for each quarter. This means that it will count as on-time payments made by each deadline. May added that this is a nice thing she does for many of her older clients.

In order to avoid federal penalties, it is recommended to pay the lesser of 90% of your 2022 taxes or 100% of your 2021 bill if your adjusted gross income is $150,000 or less. If your adjusted gross income is more than $150,000, then you should pay 110% of your 2021 bill.

You have the option of basing your payments on your income each quarter or you can look at your 2021 tax return to determine your tax liability from last year and divide that amount into four equal payments.

If you make your quarterly estimated tax payments by the designated deadlines, you will not be charged any late payment penalties. The first three deadlines for this year were April 18, June 15, and September 15, and the fourth-quarter payment is due on January 17, 2023.

Paying taxes based on the previous year's liability does not guarantee that you will not owe taxes for 2022. Consulting a tax specialist can help you determine the amount to set aside before filing taxes in April.