Q2 Capital Gains Est. Tax Necessary? (~$10K)

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Strifey
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Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by Strifey »

Think this is an easy question, I've just never had to deal with it before.

This is the first time I've sold anything with capital gains and it was to rebalance my taxable portfolio out of high ER Mutual Funds.

I've always just been a normal w-2 employee, rather simple taxes with just some dividend/interest forms from brokerage, and I've done everything in Turbo Tax the past ~10 years.

I just happened to read about this estimated taxes thing doing general research online and now am trying to figure out if I should be doing something by the June 15th deadline.

Is there a large penalty if I wait until 2021 tax season, there has to be people who sell a moderate amount of capital gains and don't even realize they need to do something extra before tax time? I'm assuming I need to do something for CA state also since I have to pay 9.3% in addition to the 15% Federal.

Is there an easy automated way to do this, Turbo Tax has spoiled me because I just doing everything on my computer and most stuff is auto-imported electronically these days so taxes are usually braindead...
PaunchyPirate
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Joined: Sun Nov 30, 2014 7:58 pm

Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by PaunchyPirate »

Strifey wrote: Tue Apr 06, 2021 3:47 pm Think this is an easy question, I've just never had to deal with it before.

This is the first time I've sold anything with capital gains and it was to rebalance my taxable portfolio out of high ER Mutual Funds.

I've always just been a normal w-2 employee, rather simple taxes with just some dividend/interest forms from brokerage, and I've done everything in Turbo Tax the past ~10 years.

I just happened to read about this estimated taxes thing doing general research online and now am trying to figure out if I should be doing something by the June 15th deadline.

Is there a large penalty if I wait until 2021 tax season, there has to be people who sell a moderate amount of capital gains and don't even realize they need to do something extra before tax time? I'm assuming I need to do something for CA state also since I have to pay 9.3% in addition to the 15% Federal.

Is there an easy automated way to do this, Turbo Tax has spoiled me because I just doing everything on my computer and most stuff is auto-imported electronically these days so taxes are usually braindead...
The due dates for the 4 quarters for estimated tax payment do not match the calendar 4 quarters. Quarter 1 is due April 15th. You can pay it online at IRS.gov in a couple different ways.
pshonore
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by pshonore »

The easiest way to this is to increase withholding from your paycheck. Of course you'll have to figure out how much additional tax will be due. If you go the estimated payment route, I believe the Q1 payment for Tax year2021 is still due on 4/15/21.
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Strifey
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by Strifey »

My trade just settled today (made it yesterday). I still need to hit the April 15th date?

I'd prefer to have a month end statement from Fidelity so I can have a paper trail of all the actual capital gains on a monthly statement for my calc.

Also I'd prefer just to make a payment since I have money in an HYSA that I can replenish later vs messing up my paycheck withholdings all year since this is a one time thing.

Anyone know what happens if I was someone who didn't know I needed to do this and waited until tax season when I got my 1099 for 2021 from Fidelity?

I know there's a potential penalty but don't know what exactly that entails...
MrJedi
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by MrJedi »

Not sure about CA, but for federal there are some tax safe harbors based on last year's tax. If you just have withholdings of at least last year's tax liability (or 110% if your AGI is above a threshold), then you will be good for this year. Depending on the amount of tax that your capital gains produces and your other income, this may be a lower amount to meet.
PaunchyPirate
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by PaunchyPirate »

Strifey wrote: Tue Apr 06, 2021 4:26 pm My trade just settled today (made it yesterday). I still need to hit the April 15th date?

I'd prefer to have a month end statement from Fidelity so I can have a paper trail of all the actual capital gains on a monthly statement for my calc.

Also I'd prefer just to make a payment since I have money in an HYSA that I can replenish later vs messing up my paycheck withholdings all year since this is a one time thing.

Anyone know what happens if I was someone who didn't know I needed to do this and waited until tax season when I got my 1099 for 2021 from Fidelity?

I know there's a potential penalty but don't know what exactly that entails...
The penalties are based upon a percentage of the shortage. It’s not an overly onerous charge. It’s unclear whether you are saying you will owe $10,000 in taxes on your transaction or if your cap gains were $10,000. That penalty would be a big difference.

And yes, technically, taxes are due in the quarter in which the income was made. So they are due by the 15th, if you choose to pay them.

As others have mentioned, review the IRS safe harbor clauses, as you may qualify for one. No penalties would apply if you do. Or look at having more money withheld from your salary to pay the taxes.

You could also do a “pretend” 2021 tax return in your 2020 copy of TurboTax. It should give you an idea of what you face. You can pretend to make quarterly payments or not and see the different results.
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Strifey
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by Strifey »

PaunchyPirate wrote: Tue Apr 06, 2021 6:15 pm The penalties are based upon a percentage of the shortage. It’s not an overly onerous charge. It’s unclear whether you are saying you will owe $10,000 in taxes on your transaction or if your cap gains were $10,000. That penalty would be a big difference.

And yes, technically, taxes are due in the quarter in which the income was made. So they are due by the 15th, if you choose to pay them.

As others have mentioned, review the IRS safe harbor clauses, as you may qualify for one. No penalties would apply if you do. Or look at having more money withheld from your salary to pay the taxes.

You could also do a “pretend” 2021 tax return in your 2020 copy of TurboTax. It should give you an idea of what you face. You can pretend to make quarterly payments or not and see the different results.
I'll owe $10K in taxes, the LTCG capital gains were ~$45K at 15% Federal and 9.3% CA state tax rate.

I was reading the safe harbor clause related to 110% AGI for last year's tax return and believe that applies to me. Last year my AGI was $104K, should be around $120K this year since I got a raise and my W-2 withholdings are based on the $120K. It sounds like in this case I wouldn't need to make an estimate tax payment on the $10K since it's a one time deal this year and I still fall under this safe harbor rule as my paycheck witholdings should be 110% of last year?

Thanks.
lazynovice
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by lazynovice »

Strifey wrote: Tue Apr 06, 2021 6:39 pm
PaunchyPirate wrote: Tue Apr 06, 2021 6:15 pm The penalties are based upon a percentage of the shortage. It’s not an overly onerous charge. It’s unclear whether you are saying you will owe $10,000 in taxes on your transaction or if your cap gains were $10,000. That penalty would be a big difference.

And yes, technically, taxes are due in the quarter in which the income was made. So they are due by the 15th, if you choose to pay them.

As others have mentioned, review the IRS safe harbor clauses, as you may qualify for one. No penalties would apply if you do. Or look at having more money withheld from your salary to pay the taxes.

You could also do a “pretend” 2021 tax return in your 2020 copy of TurboTax. It should give you an idea of what you face. You can pretend to make quarterly payments or not and see the different results.
I'll owe $10K in taxes, the LTCG capital gains were ~$45K at 15% Federal and 9.3% CA state tax rate.

I was reading the safe harbor clause related to 110% AGI for last year's tax return and believe that applies to me. Last year my AGI was $104K, should be around $120K this year since I got a raise and my W-2 withholdings are based on the $120K. It sounds like in this case I wouldn't need to make an estimate tax payment on the $10K since it's a one time deal this year and I still fall under this safe harbor rule as my paycheck witholdings should be 110% of last year?

Thanks.
That sounds right. If your 2021 withholdings are 110% of your 2020 total tax liability (make sure you are looking at the total tax liability, not the refund or amount paid at year end), you are in the safe harbor for federal. I do not know the rules for California.
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Strifey
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by Strifey »

lazynovice wrote: Tue Apr 06, 2021 6:47 pm That sounds right. If your 2021 withholdings are 110% of your 2020 total tax liability (make sure you are looking at the total tax liability, not the refund or amount paid at year end), you are in the safe harbor for federal. I do not know the rules for California.
Thanks, I'm looking at the table included with my w-4 on my companies payroll website. But I'm manually updating my w-4 anyways with expected other income from dividends, investments, etc. since I really don't want to manually deal with this just to be extra safe.
MrJedi
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by MrJedi »

Strifey wrote: Tue Apr 06, 2021 6:39 pm
PaunchyPirate wrote: Tue Apr 06, 2021 6:15 pm The penalties are based upon a percentage of the shortage. It’s not an overly onerous charge. It’s unclear whether you are saying you will owe $10,000 in taxes on your transaction or if your cap gains were $10,000. That penalty would be a big difference.

And yes, technically, taxes are due in the quarter in which the income was made. So they are due by the 15th, if you choose to pay them.

As others have mentioned, review the IRS safe harbor clauses, as you may qualify for one. No penalties would apply if you do. Or look at having more money withheld from your salary to pay the taxes.

You could also do a “pretend” 2021 tax return in your 2020 copy of TurboTax. It should give you an idea of what you face. You can pretend to make quarterly payments or not and see the different results.
I'll owe $10K in taxes, the LTCG capital gains were ~$45K at 15% Federal and 9.3% CA state tax rate.

I was reading the safe harbor clause related to 110% AGI for last year's tax return and believe that applies to me. Last year my AGI was $104K, should be around $120K this year since I got a raise and my W-2 withholdings are based on the $120K. It sounds like in this case I wouldn't need to make an estimate tax payment on the $10K since it's a one time deal this year and I still fall under this safe harbor rule as my paycheck witholdings should be 110% of last year?

Thanks.
Are you married filing separately? The 110% kicks in at 150k unless you file MFS (75k). Yes, single, HoH, and MFJ all have the same threshold at 150k.
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Strifey
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Re: Q2 Capital Gains Est. Tax Necessary? (~$10K)

Post by Strifey »

MrJedi wrote: Wed Apr 07, 2021 6:03 am
Strifey wrote: Tue Apr 06, 2021 6:39 pm
PaunchyPirate wrote: Tue Apr 06, 2021 6:15 pm The penalties are based upon a percentage of the shortage. It’s not an overly onerous charge. It’s unclear whether you are saying you will owe $10,000 in taxes on your transaction or if your cap gains were $10,000. That penalty would be a big difference.

And yes, technically, taxes are due in the quarter in which the income was made. So they are due by the 15th, if you choose to pay them.

As others have mentioned, review the IRS safe harbor clauses, as you may qualify for one. No penalties would apply if you do. Or look at having more money withheld from your salary to pay the taxes.

You could also do a “pretend” 2021 tax return in your 2020 copy of TurboTax. It should give you an idea of what you face. You can pretend to make quarterly payments or not and see the different results.
I'll owe $10K in taxes, the LTCG capital gains were ~$45K at 15% Federal and 9.3% CA state tax rate.

I was reading the safe harbor clause related to 110% AGI for last year's tax return and believe that applies to me. Last year my AGI was $104K, should be around $120K this year since I got a raise and my W-2 withholdings are based on the $120K. It sounds like in this case I wouldn't need to make an estimate tax payment on the $10K since it's a one time deal this year and I still fall under this safe harbor rule as my paycheck witholdings should be 110% of last year?

Thanks.
Are you married filing separately? The 110% kicks in at 150k unless you file MFS (75k). Yes, single, HoH, and MFJ all have the same threshold at 150k.
Yea I read it more closely last night and realized that, so its just 100%. I manually increased my W-4 a bit for additional witholdings to make sure I hit the 100% of last year, but think I'm good now. Thanks!
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