Where to get tax advice: Just retired, sold condo, moved into previously rented condo...

In My Humble Opinion
1

I just retired and I’m trying to figure our tax liability for this year (2016). The IRS isn’t answering tax questions yet and their website doesn’t easily address my issues. Other “advice” services don’t seem to operate until after 1/1/17.

Here’s my situation:

  1. Retired at the end of 2015.
  2. The only income we’ve had for 2016 are Social Security benefits (~$35K) and about $10K in interest and dividends. Deductions: ~$3K property tax, ~$12K in medical insurance and medical bills.
  3. We sold our primary residence condo (in Ca if it matters) for a substantial profit, but less than the Homeowners Exemption (or whatever it’s called).
  4. We moved in to another condo we owned (in Az) that we had been using as a rental for 15 years: i.e., that condo is now our primary residence.

I haven’t been making Estimated Quarterly Tax Payments because I’ve assumed that we won’t owe any tax this year. I’m thinking I might be making a mistake on this, however.

Here are confounding factors that I don’t understand the effect of:

  • Since we converted rental property into our primary residence, are there charges that we are going to be held liable for this year? For example, will we get billed somehow for any depreciation we’ve taken on the AZ condo or it’s fixtures (washer / dryer, etc.)?

  • Will the large gain on our old condo affect whether our SS benefits are taxable (even though the gain itself isn’t taxable)?

And, how screwed am I for not making Estimated Quarterly Tax Payments? If I am screwed, how can I minimize any penalties and interest?

Also, any recommendations for places to have my questions answered (for cheap or free)?

Thanks,
J.

2

Here you go. I have no clue about any of your substantive tax questions.

3

Thanks, I’ll check it out.

Anyone else have any input on my questions?

Thanks,
J.

4

Honestly, your situation sounds complicated enough that you probably shouldn’t count on cheap or free answers but instead pay for the services of a qualified professional.

5

No clue on the earlier items.

As to the last item: if you failed to make estimated tax payments you’ll be liable for three things when you file in Apr 2017: 1) paying the total taxes owed; 2) paying interest on the estimated payments you didn’t make; 3) paying a penalty.

Assuming you can come up with the scratch for #1, the others are trivial. The interest rate is modest and the actual amount of interest is IIRC 3 quarters of time for 1/4 of the balance, 2 quarters of time for 1/4 the balance, and 1 quarter of time for 1/4 the balance. Which = 6/16 or 37% of the low statutory rate times the total tax owed. The penalty is no biggee either.

If you can rough out your 2016 taxes now you can make a 4QTY16 estimated payment by Jan 17, 2017. If you make that roughly equal to what you should have paid up to that point at least you’ll stop the interest accrual for the last calendar quarter. And that will reduce the penalty amount as well.

Your calcs don’t need to be perfect. Whether you over or short an estimated payment it’s no big deal; it all washes out with the 1040 filing. And interest or penalty is only owed on however much you actually underpaid for however long you actually underpaid it.