Simple (hopefully) question about paying estimated taxes

[Bob Ross]

You would think this is an easy question to get a straightforward answer to from the accountant who prepares my tax return (!!!), but no, and so sadly I am resigned to asking a group of strangers on an internet forum about bicycles.

Does paying -- or not paying -- estimated taxes quarterly impact my total tax liability for the year?

In other words, if I pay $N,000 in estimated Federal taxes per quarter, does that change (lower or raise) the total taxes that I'm liable for for the year when preparing my 2022 return next Spring? or does it just reduce the amount of tax that I owe at that time?

Thanks.

[zachateseverything]

federal income taxes in the US are pay as you go. If you're working for an employer and have your withholdings setup correctly it's a non-issue, but the IRS doesn't want you to carry more than $1000 in owed taxes. If you underpay (or outright skip) your quarterly tax payments the IRS will charge you a penalty on the amount owed, effectively increasing your rate.

[EDS]

There are penalties for underpayment if your estimated tax payments are not sufficient, but other than that my understanding is they do not impact the total amount of tax you need to pay for a given year.

[caleb]

If you're working for an employer and have your withholdings setup correctly it's a non-issue, but the IRS doesn't want you to carry more than $1000 in owed taxes.

Might depend on your definition of "correctly."

After the last tax reform, we ended up needing to pay in about $2200 on W2 income with zero allowances. We got dinged with a minor penalty that I didn't expect.

[bking]

There are rules that determine if you need to pay estimated taxes. There is no discount for doing so, only penalites, as has been pointed out, if the rules determine you should and you don't.

[DJB]

You can avoid a penalty, even if you are underpaid, by paying at least last year’s liability. I stole the below from the web- Link


IRS Form 2210 Schedule AI: Annualized Installment Method is a great tool for those who receive income unevenly.
To penalty proof yourself you must meet of one these two requirements for individuals:
1. Pay 90% of the tax you owe in the current year; or
2. Pay 100% of the tax you owed last year.
If your adjusted gross income last year was greater than $150,000 (over $75,000 for married filing separately) you must pay the lower of:
1. 90% of tax for current year; or
2. 110% tax shown on last year’s return.

[Drew]

You would think this is an easy question to get a straightforward answer to from the accountant who prepares my tax return (!!!), but no, and so sadly I am resigned to asking a group of strangers on an internet forum about bicycles.

Does paying -- or not paying -- estimated taxes quarterly impact my total tax liability for the year?

In other words, if I pay $N,000 in estimated Federal taxes per quarter, does that change (lower or raise) the total taxes that I'm liable for for the year when preparing my 2022 return next Spring? or does it just reduce the amount of tax that I owe at that time?

Thanks.

Seems obvious to say... but to say it anyway: seems like you need to shop around for a new tax specialist. I had a date with mine recently and asked him your question out of curiosity... it's not prudent to post the response verbatim, but to summarize, "that's a JV question and that guy needs a tax specialist rather than just a tax preparer."

FWIW - maybe try to find someone that is a specialist in tax prep, estate planning, and financial planning. They're rare, they're expensive, but they're out there and worth every penny. They can answer these types of questions, vs a tax preparer who may only be trained to work with the facts as presented. I feel like it's been a great experience for me to work with a specialist who can take in the "big picture" and help answer these questions, along with the myriad of others (asset protection, estate planning, trusts, wills, etc etc etc).

[Bob Ross]

seems like you need to shop around for a new tax specialist.

Oh believe me, we are totally onboard with that conclusion and already down the rabbit-hole of finding a replacement...this guy's inability to provide a succinct answer* was the last straw in a long history of vague, incomplete, or uninformative communications.


*btw, he did eventually answer my question from the OP, and his conclusion is essentially the same as what everyone here has suggested...but if I hadn't already read all the responses in this thread I would probably be going back & forth with Mr. Obtuse to get more clarity on what his terse and unclear single-sentence response actually meant.
:::angryface:::