I am doing my 2021 return and realized 2 things:
I underpaid my 2021 taxes via withholding, so much so that I may need to pay a penalty
There is a mistake on my 2020 taxes (this re-affirms my decision to do my own taxes this year!), that, once corrected, means I overpaid my 2020 taxes.
I see on the 1040X form that there is the option to apply the overpayment to the estimated taxes for the year of my choice (1040X, Line 23). In order to reduce or eliminate my 2021 penalty, I am thinking of doing the following:
Amending my 2020 taxes ASAP, and applying the overpayment to my 2021 estimated taxes.
Referencing this estimated payment on my 2021 return (1040, line 26), and on line 11 of form 2210 (if applicable), making the date April 15, 2021 as per instructions.
My concern with this plan is timing. I know that that amended returns take a looonnnng time to process, and am concerned that if my 2021 return is processed before my 2020 amendment, the IRS will be like "what estimated payment??" and send me a nasty letter. That said, if I don't do this plan, I will owe a greater penalty and/or have to amend my 2021 taxes as well as my 2020 taxes.
I am also considering filing the amendment now, computing my 2021 taxes shortly thereafter but filing an extension (with appropriate payment) and waiting until the amendment is processed to file for 2021. I am not confident, however, that the amended return will be processed before the extension date of October 15th.
Any advice? Specifically, what happens if the IRS processes a return claiming I've paid estimated taxes that they aren't (yet) aware of?