Did your estimated tax payment keep up with your real estate portfolio?

Question

September is a good time to ask.

Maybe you bought another property.Maybe you sold one.Maybe your income changed.

But your estimated tax payment may still be based on last year’s numbers.

That can be an expensive mistake.

So I’m curious:

Do you actually recalculate your estimated taxes during the year, or just keep paying the same amount?

What’s your approach?

Jason Malabute · Answer

It really depends on the client. The ones who get their return done early will usually pay safe harbor amounts for the first couple of quarters and then we circle back in the third and fourth to true things up once we can actually see how the year shaped up. For the folks who tend to run late, we carry estimates through the third quarter and square it away in the fourth. Either way, what I like to do is put two numbers in front of them, what the tax looks like exactly as things stand today, and then what it could look like if they moved on a few specific things before year end. That second number is usually the one that gets people's attention, because paying the same amount you paid last year is still a decision even when it doesn't feel like one. Where you land depends on your own facts, so it's worth walking through it with your CPA instead of letting the old number ride.

Aaron Zimmerman · Answer

It depends On the client. The clients that file a little earlier, usually do safe harbor estimates for q1 and q2 and then true up in q3/q4

For the stragglers, try and do estimates through q3 and then true up in q4.

I usually present an as is calculation and then if you did x, y, z, this is how much you could save/defer.

Diana Khan · Answer

@William Thompson, I’ve learned not to assume last year’s estimate still makes sense once the year starts moving. If I buy or sell property, have a big change in income, or something else shifts, I’d rather check in during the year than get surprised later.

What has worked best for me is treating estimated taxes like something that needs to be reviewed when the facts change, not just something I set once and forget. I’m not trying to do the tax math myself, but I do want my CPA looking at the real picture as the year goes on.

Did your estimated tax payment keep up with your real estate portfolio?

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