Craig Wear (CFP®) discusses tax strategies for high-income taxpayers, emphasizing that when doing (Roth) conversions they will likely be high-income and should ensure their tax payments during the year meet safe-harbor rules (e.g., paying 110% of prior-year tax liability) to avoid IRS underpayment penalties if estimated payments or withholding are insufficient.
But more likely, if you're going to be doing conversions, you probably are going to fall into the high income taxpayer category. And so you're going to want to make sure that you get paid in 110% of your prior year tax liability to make sure that you avoid penalties. So when, when do penalties apply? Well, easily. I mean, it's most people already know this, but I'll say it, if you, if you, if you don't pay enough tax during the year, the IRS may impose an underpayment penalty. And this can apply, like I've already said, even as you pay the full amount by the filing deadline, if your estimated payments or your withholding are insufficient throughout the year to cover it, you could get some penalties. All right.
