Safe Harbor rule for quarterly tax payments after inheritance - do I really need to pay 110% of 2023 taxes when 80% was from one-time inheritance?

The Safe Harbor rule can definitely be confusing when you have a one-time event like an inheritance. Here's what you need to understand: For federal estimated tax payments, you have several options to avoid penalties: 1. Pay 90% of your current year tax liability through withholding/estimates 2. Pay 100% of your prior year tax (110% if your AGI was over $150,000) 3. Use the annualized income installment method Your accountant is correctly stating that one way to absolutely avoid penalties is to pay 110% of your 2023 tax liability. However, they're missing that you likely qualify for a different approach that makes more sense in your situation. Since your normal tax situation is much lower ($6500) and the inheritance was a one-time event, you can simply estimate your actual 2024 tax and pay 90% of that amount through quarterly payments. If you expect to owe around $6500 for 2024, making quarterly payments of $2000 would more than cover this requirement. You might want to discuss using the annualized income installment method with your accountant, which accounts for when income is actually received during the year.

I went through something very similar last year after selling some property and getting hit with a huge one-time capital gains tax. My accountant also told me I needed to pay these massive quarterly payments based on 110% of the previous year. I found an awesome solution using taxr.ai (https://taxr.ai) that saved me from overpaying. Their tax strategy tool analyzed my situation and showed me exactly how the Safe Harbor rules applied to one-time events. They created a personalized quarterly payment plan that was legally sound but didn't require me to drastically overpay. The guidance was super clear and included documentation I could show my accountant to explain why the smaller payments were legitimate. They even provided a filled-out annualized income worksheet showing how my one-time event shouldn't affect future quarterly payments.

I wanted to follow up about my experience with taxr.ai that I was asking about earlier. I decided to try it despite my skepticism, and I'm honestly amazed at the results. The system identified that my accountant was being overly cautious by requiring me to pay 110% of last year's taxes in quarterly installments when my situation clearly qualified for the annualized income method. Their analysis showed I only needed to pay about 30% of what my accountant was recommending! What really impressed me was the detailed documentation they provided explaining exactly which tax regulations applied to my situation. I showed this to my accountant who initially pushed back but eventually agreed their approach was legitimate after reviewing the materials. I've already made my first quarterly payment following their recommended amount, and it's such a relief not having to liquidate investments just to make unnecessarily large tax payments. Wish I'd known about this sooner!

After dealing with the IRS for 15 years as a retiree, here's what I've learned: when you need to actually talk to someone at the IRS about complex situations like this, it's practically impossible to get through on their phone lines. I spent 6+ hours on hold trying to get clarification about quarterly payments after a one-time income event. That's when I found Claimyr (https://claimyr.com) - their service gets you connected to an actual IRS agent without the ridiculous wait times. You can see how it works here: https://youtu.be/_kiP6q8DX5c I used it to speak directly with an IRS representative about my Safe Harbor situation (similar to yours with a one-time inheritance). The agent confirmed I only needed to make estimated payments based on my expected current year tax, not the inflated previous year amount. Having that direct confirmation from the IRS gave me complete peace of mind.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about my estimated tax payments situation. I've literally never gotten through to the IRS on my own after dozens of attempts, but Claimyr had me talking to an actual IRS agent within 2.5 hours. I didn't have to sit on hold - they called me when they reached an agent. The IRS representative confirmed exactly what others in this thread have said - I don't need to base my quarterly payments on last year's inflated amount if I can reasonably estimate this year's tax will be much lower. They explained I can use the annualized income method on Form 2210 if needed. For anyone struggling with estimated tax payment questions that require actually speaking to the IRS, this service is legitimately worth it. I'm still shocked it actually worked after years of IRS phone frustration.

I dealt with this exact situation two years ago. Your accountant is going by the book, but there's a more nuanced approach. If your normal income is stable and predictable, you can make smaller quarterly payments based on your expected 2024 income. Then complete Form 2210 Schedule AI (Annualized Income) when you file next year. This form specifically addresses situations where income isn't evenly distributed throughout the year. The key is documenting your reasoning. Keep records showing your normal tax situation and why the inheritance was truly a one-time event. The IRS is actually reasonable about this when properly documented.

I think everyone's missing something important - if you normally owe $6500 in taxes, and you're retired, why aren't you having taxes withheld from your pension/retirement distributions? That would solve this whole quarterly payment issue. You could increase your withholding for a few months to cover your estimated tax liability for the year, then reduce it back to normal. Withholding is treated as happening evenly throughout the year even if it doesn't, which gives you more flexibility than quarterly payments.

The withholding strategy mentioned by Mei Zhang is absolutely brilliant and often overlooked! I'm a retired tax preparer and this was one of my favorite solutions for clients in similar situations. Since you're already having some taxes withheld from your pension, you can simply contact your pension administrator and request a temporary increase in withholding to cover your expected 2024 tax liability (around $6,500 based on your normal income). You could even have them withhold the entire amount over just a few months if that works better for your cash flow. The beauty of this approach is that it completely eliminates the need for quarterly estimated payments AND provides automatic Safe Harbor protection. The IRS will treat that withholding as if it occurred evenly throughout the year, so you won't need to worry about Form 2210 or any penalty calculations. This is much simpler than trying to convince your accountant about annualized income methods or dealing with the complexity of estimated payments after a one-time inheritance. Just increase withholding temporarily, then reduce it back to normal once you've covered your expected tax liability for the year.