Waiting for Proshares K-1 forms but already owe federal taxes - penalties question

The underpayment penalty doesn't increase daily before the filing deadline in the way you might be thinking. It's calculated based on the amount you underpaid and how long you underpaid it for. The IRS essentially charges interest on the amount you should have paid in quarterly estimated taxes. The rate changes quarterly (currently around 7-8% annually) and is applied to whatever you should have paid for each quarter. So yes, technically it continues to grow until you pay, but it's not a daily-increasing penalty rate - just interest accumulating on the unpaid amount. As for your options, you have two reasonable choices: 1. You can make an estimated tax payment now, which will stop further interest from accruing on that amount. This doesn't eliminate penalties already accrued, but prevents more from building up. 2. You can file your return now without the K-1s and then amend later. This is generally fine if the K-1 amounts are relatively small compared to your overall tax picture. The best approach depends on how substantial the K-1 information will be relative to your total tax situation and how long you expect to wait for the forms.

Just wanted to share my experience with a similar situation. I was stuck waiting for K-1 forms from some ETFs last year while knowing I owed taxes. I tried manually calculating what I'd owe without the K-1s but kept getting confused with all the different scenarios. I finally used https://taxr.ai to analyze my partial tax documents and it helped estimate what my total liability would be, including the expected K-1 information based on previous years. This let me make a more accurate payment before the deadline and minimize penalties. The tool analyzed my previous K-1s and gave a pretty solid approximation of what to expect for the current year. Definitely saved me from overpaying or underpaying while waiting for those forms to arrive.

I tried taxr.ai after seeing it mentioned here and it was actually super helpful with my ProShares K-1 situation! Uploaded my previous year's K-1s along with my current statements and it gave me estimates that were really close to what I needed. The best part was it showed me exactly how much I should pay now to minimize penalties while waiting for the official forms. Saved me from making a wild guess payment that would have been way off. Their document analyzer found some deductions in my previous returns I hadn't even considered for this year. Just filed my final return yesterday after getting all my K-1s and the estimate was within $175 of the actual amounts. Definitely using this again next year since I'm stuck with these ETFs and their late K-1s for the foreseeable future.

I had this exact problem last year and wasted hours trying to reach the IRS to get advice. Kept getting disconnected or sitting on hold forever. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they basically hold your place in the IRS phone queue and call you when an agent is about to answer. The IRS agent told me that if I was waiting on K-1s, I could file Form 4868 for an extension, but I should still pay my estimated tax by the April deadline to avoid additional penalties. They also explained exactly how the underpayment penalties are calculated quarter by quarter, which was way clearer than anything I found online. Honestly saved me so much frustration compared to my previous attempts to reach someone. Had an actual 20-minute conversation with an IRS rep who knew exactly what to do with investment forms.

I need to apologize for my skepticism about Claimyr. After waiting on hold with the IRS for 2+ hours yesterday and getting disconnected TWICE, I was desperate enough to try it. Used the service this morning for my ProShares K-1 question, and I'm still in shock. I got a call back in about 40 minutes (the app showed my place in line the whole time), and suddenly I was talking to an actual IRS agent. The agent explained that making an additional estimated tax payment now would help reduce (but not eliminate) the underpayment penalty, and walked me through exactly how to report my K-1s when they finally arrive. Can't believe I wasted so many hours on hold before finding this. Just wanted to update since I was so doubtful before.

Just to add another option - you can estimate your K-1 income based on last year's forms if the investments are similar. That's what my CPA recommended. Then file Form 2210 with your return to show you had a reasonable cause for underpayment and request a penalty waiver. I've done this twice when waiting for K-1s from partnerships and it worked both times. The IRS can waive the penalty if you have a good reason for not making sufficient estimated payments, and waiting for K-1s that typically arrive late is considered reasonable by many IRS reviewers.

Something nobody's mentioned - if your prior year's AGI was under $150k, you can avoid underpayment penalties entirely by paying 100% of your prior year's tax liability through withholding or estimated payments (110% if your AGI was over $150k). This is called the "safe harbor rule" and it's the easiest way to avoid penalties even if you end up owing more this year. If you've already hit that threshold for 2022, you shouldn't have any underpayment penalties regardless of what's on those K-1s.