Unique estimated taxes question

[taxquestions]

I understand that for estimated taxes for self-employed, you can pay 100% of your prior years taxes owed or 90% of the taxes you *estimate* you will owe for the current year.

My 2019 taxes owed are about $25,000 USD, however they are almost zero because I am a non-resident and claim FTC's
(Foreign Tax Credits) as I am a resident of Canada. After the FTC's my tax owed is only a few hundred dollars.

Fast forward to 2020 I am now a resident of USA. I expect to owe $25k USD again in tax (with no FTC's).

For my 2020 taxes, am I able to pay the 100% of my prior years taxes (few hundred $$$ in 2019) for my estimated taxes? Or are there rules again this?

[nelsona]

For US, estimated taxes are due regardless of what prior years taxes were, so you best estimate reasonably, and pay quarterly, or you will be charged interest. Prior years will only determine if there is penalty or not.

most send 25% of gross each quarter.

[taxquestions]

Paying 100% of the last year tax liability from my understanding is the "safe harbour" rule, and like you said you'll have no penalties, even if you make a million dollars this year and have a massive tax bill.

So this makes your statement that "estimated taxes are due regardless of what prior years taxes were" incorrect, no?

[nelsona]

Re-read what I said. If you owe taxes at the end of the year and did not provide "enough" during the year, you can be charged *interest*. You may avoid *penalties* by paying some minimum amount.

I'll let you determine what "enough" is.

[taxquestions]

I will have to disagree with you nelsona.

If you pay %100 of your prior year taxes you will not be subject to any penalty.

Example: 2019 tax liability: $10k. 2020 tax liability: $25k. As long as you pay $10k for your estimated tax installments for 2020, you will not be charged any penalties on the remaining $15k. You will only be charged additional interest if you dont pay the remaining $15k by Apr 15th, 2021. I believe this is the interest penalty you are referring to.

IRS publication 505 (Tax Withholding and Estimated Tax) also confirms this.

On page 47 "Underpayment Penalty for 2018" it states:

No penalty. Generally, you won’t have to paya penalty for 2018 if any of the following apply.
• The total of your withholding and timely estimated tax payments **was at least as much as your 2017 tax.** (See Special rules for certain individuals, later, for higher income taxpayers and farmers and fishermen.)

[taxquestions]

taxquestions wrote:
> I will have to disagree with you nelsona.
>
> If you pay 100% of your prior year taxes you will not be subject to any
> penalty.
>
> Example: 2019 tax liability: $10k. 2020 tax liability: $25k. As long as you
> pay $10k for your estimated tax installments for 2020, you will not be
> charged any penalties on the remaining $15k. You will only be charged
> additional interest if you dont pay the remaining $15k by Apr 15th, 2021. I
> believe this is the interest penalty you are referring to.
>
> IRS publication 505 (Tax Withholding and Estimated Tax) also confirms this.
>
> On page 47 "Underpayment Penalty for 2018" it states:
>
> No penalty. Generally, you won’t have to paya penalty for 2018 if any of
> the following apply.
> • The total of your withholding and timely estimated tax payments **was at
> least as much as your 2017 tax.** (See Special rules for certain
> individuals, later, for higher income taxpayers and farmers and fishermen.)

[nelsona]

Good research. Answered your own question, and provided it here. That is my preference.