My understanding is that I need to pay all my US taxes due by 04/15 to avoid a penalty. Last year, I received one PFIC on 4/13 and the other in July. How do people estimate what the amount of earnings will be?
You should be able to file for an extension. I think you may need to make an estimated payment, but I don’t think you’ll run into trouble so long as you make a good faith effort to pay what you know you’ll owe and true it up later.
Not sure on the estimated payment though
Yeah I am talking about calculating the estimated payment.
Estimated payments can be made quarterly. You don’t need to pay full year estimate on April 15, just a quarter of projected annual tax owed (using previous year as reasonable basis). Once you have your PFIC later in the year you can adjust your next quarterly payment up or down as needed. It’s worth getting an accountant involved once you’re dealing with PFICs because the filing is more complicated than standard income earners.
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OP is talking about FY2023 I believe.
In this case, the only safe thing to do is estimate the total gain, assume worst tax rate, grind it into your tax return, then pay that much with your 4/15 extension. Otherwise if you are wrong then you will owe some amount of underpayment penalty. This used to not be a big deal but penalty rates are something like 8%? this year so you might care.
The IRS does not care about good faith efforts in terms of the total payment they receive. They will let you extend with no issue, and be wrong in your final calculation with no issue assuming a good faith effort, but if you’re about so far off then they will want their penalty rate and there’s no forgiveness on that.
There is a form for the underpayment penalty calculation, you can grind it out yourself and see if you care enough to do something about it.
You probably should take a gander at the “safe-harbor” rules - e.g. if you have already paid in N % of last year’s tax or the like, then no underpayment penalty may apply. It might apply to you, which would make the point moot.
For some people some times there is a need to make quarterly estimated payments but if you are a regular salaried employee it rarely tends to apply - you need a fairly significant imbalance of lump-sum income to get to that point.
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Exactly what I was asking. I will just double the gains from last year. If it is more than that, I will be happy with a significant return on my fund.
Sure, if you’re a wage earner, but quarterly estimated payments are required in a lot of common situations where your taxes are not otherwise withheld - self employed, independent contractor, freelancers, and a lot of investors.
Following up on this…
If I take my 2024 PFIC gain/income numbers, and plug them into a 2025 tax planner, I see that I’ll receive a refund based on other taxes already paid.
However, given the 2025 appreciation of the IMGA fund, and the fall of USD, the potential gain/income that will be reported might dwarf 2024 numbers. The point being I Dont Know…
So, what constitutes a good faith effort to pay estimated taxes? My goal being to avoid penalties for non-payment quarterly estimated taxes.
You do the best you can. and pay the penalties when your estimate is wrong. you can of course overpay then just get the money back april 15.
That said, the way that fund works, I don’t see how you have to do anything at all. you aren’t selling shares. I don’t imagine there is real turn over in the IMGA fund itself so there should be very little realized gains to be taxed on. Remember that if you chose QEF you aren’t being marked to market so if there are no realized gains there’s nothing to tax except the dividends.
if you chose mark to market, well.
you can also go for safe harbor rules -
“Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.”
in which case no estimated taxes are needed.
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Perhaps I’m misunderstanding what you’re saying, but imga adds significantly to my tax bill every year because the ordinary income and capital gains are added to my taxes
What is a QEF Election for PFIC: Qualified Electing Fund.
I think it comes down to the fact that there is in fact a good amount of churn in imga
FWIW, here’s what I received from my US CPA. Probably very specific to my situation, but to close the loop on the convo I started…
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Since in 2024 you did not owe more than was with-held you are not required to prepay for 2025 and would not have any penalties on such.
You can prepay if you want to if you think the xxx$ will not cover but at this point there is no way to know how much to pay since you don’t know what the PFIC gains will be in 2024.
Thus if you are fine just paying any and all taxes in early 2026 when you file you don’t need to prepay more now but if you prefer to pay over time vs a lump sum then you can do so for sure and if you over pay it will be refunded to you.
Ok, my statement was based on the idea that it’s an index tracker and since the index changes rarely why should the fund. If the fund is generating realized gains, then you’re screwed.
I don’t have the entire context of course, but as an isolated sentence, that feels wrong.
Maybe I’ll forward this quote to the IRS and see if I can get all of my tax penalties and interest charges refunded. 