Who needs to pay quarterly taxes?

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JD2775
Posts: 948
Joined: Thu Jul 09, 2015 10:47 pm

Who needs to pay quarterly taxes?

Post by JD2775 »

This may be a really dumb question but I have no idea....

Assuming:
W2 employee
Haven't sold any taxable investment (yet)
Pays taxes on dividends/interest at year-end each year during tax time, currently $200-$300 or so

Is there a certain % or level of selling on a taxable asset that would require you to pay quarterly taxes before the regular year-end during that specific year? 10k? 50k? 500k? Is there some trigger warning that you would know if you had to pay taxes before year end?

Or are quarterly taxes strictly for 1099 employees and have nothing to do with selling taxable assets?

I tried googling this but the results were a little confusing to me

Thanks
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FIREchief
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Re: Who needs to pay quarterly taxes?

Post by FIREchief »

I guess the technical answer is that (depending upon income), a person who doesn't expect to have withholdings equal to a) 100%/110% of last year's tax liability or b) 90% of this year's tax liability should be making quarterly estimated tax payments. I think the rules are different if you're a farmer or fisherman. State rules may be different.

On a more practical level, nobody really "needs" to pay quarterly estimated taxes. The "penalty" for failure to do so is (IIRC) just paying interest at a 3.5% annual rate for the time(s) when there was a deficit. If you're paying interest on anything over 3.5%, it just turns into a generous low interest loan from Uncle Sam. 8-)

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tomsense76
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Re: Who needs to pay quarterly taxes?

Post by tomsense76 »

First would read this WCI blogpost.

Second have you tried the IRS tax estimator tool?

Third are or will you be within the safe harbor (note this changes depending on your income)? If not, can you make it by increasing withholdings (and will you do this)? If not, yeah estimated tax payments will be needed
Last edited by tomsense76 on Tue Jul 20, 2021 5:22 pm, edited 2 times in total.
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supalong52
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Re: Who needs to pay quarterly taxes?

Post by supalong52 »

Agree with FIREChief. More nuanced answer (with respect to farmers, fishermen) than I could have provided.
Seasonal
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Re: Who needs to pay quarterly taxes?

Post by Seasonal »

"Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed." See https://www.irs.gov/businesses/small-bu ... ated-taxes
Topic Author
JD2775
Posts: 948
Joined: Thu Jul 09, 2015 10:47 pm

Re: Who needs to pay quarterly taxes?

Post by JD2775 »

Thanks for the links guys...

I think I am safe for the time being. I generally break even or get a small federal tax refund of $300-$400 (even including taxes paid on taxable dividends/int).

This probably won't be an issue for me until I take a significant amount of money out of my taxable account.
sk.dolcevita
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Joined: Sat Aug 23, 2014 11:55 am

Re: Who needs to pay quarterly taxes?

Post by sk.dolcevita »

Adding another twist to OP's query - we just sold my rental property realizing significant capital gains. While my withholdings from our salaries are sufficient for the salary, we would owe a good additional sum when we file due to depreciation recapture and capital gains on top of it. Is an estimated payment required in this case? If yes, which would be the deadline if the sale was completed in the last week of June?

TIA.
tibbitts
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Re: Who needs to pay quarterly taxes?

Post by tibbitts »

sk.dolcevita wrote: Tue Jul 20, 2021 6:12 pm Adding another twist to OP's query - we just sold my rental property realizing significant capital gains. While my withholdings from our salaries are sufficient for the salary, we would owe a good additional sum when we file due to depreciation recapture and capital gains on top of it. Is an estimated payment required in this case? If yes, which would be the deadline if the sale was completed in the last week of June?

TIA.
If your salary is enough to cover the taxes just increase withholding. I have essentially 100% of my pension withheld, but it's not enough to cover my taxes, so I still have to make estimated payments. Withholding is superior to estimated payments due to not being quarter-specific.
sk.dolcevita
Posts: 285
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Re: Who needs to pay quarterly taxes?

Post by sk.dolcevita »

tibbitts wrote: Tue Jul 20, 2021 6:48 pm
sk.dolcevita wrote: Tue Jul 20, 2021 6:12 pm Adding another twist to OP's query - we just sold my rental property realizing significant capital gains. While my withholdings from our salaries are sufficient for the salary, we would owe a good additional sum when we file due to depreciation recapture and capital gains on top of it. Is an estimated payment required in this case? If yes, which would be the deadline if the sale was completed in the last week of June?

TIA.
If your salary is enough to cover the taxes just increase withholding. I have essentially 100% of my pension withheld, but it's not enough to cover my taxes, so I still have to make estimated payments. Withholding is superior to estimated payments due to not being quarter-specific.
With several hundred thousand dollars in capital gains, withholding is going to be a no-go. I have no problem sending in an estimated payment based on capital gains but want to make sure (1) it is required, an (2) the deadline for doing so if the house was sold in the last week on June (google is showing July 15 or Sep 15; if the former, I am late).
SuzBanyan
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Re: Who needs to pay quarterly taxes?

Post by SuzBanyan »

sk.dolcevita wrote: Tue Jul 20, 2021 6:53 pm
tibbitts wrote: Tue Jul 20, 2021 6:48 pm
sk.dolcevita wrote: Tue Jul 20, 2021 6:12 pm Adding another twist to OP's query - we just sold my rental property realizing significant capital gains. While my withholdings from our salaries are sufficient for the salary, we would owe a good additional sum when we file due to depreciation recapture and capital gains on top of it. Is an estimated payment required in this case? If yes, which would be the deadline if the sale was completed in the last week of June?

TIA.
If your salary is enough to cover the taxes just increase withholding. I have essentially 100% of my pension withheld, but it's not enough to cover my taxes, so I still have to make estimated payments. Withholding is superior to estimated payments due to not being quarter-specific.
With several hundred thousand dollars in capital gains, withholding is going to be a no-go. I have no problem sending in an estimated payment based on capital gains but want to make sure (1) it is required, an (2) the deadline for doing so if the house was sold in the last week on June (google is showing July 15 or Sep 15; if the former, I am late).
Taxes for income earned in June - August are due September 15.

But, you may not owe estimated payments if your withholding alone puts you in a safe harbor of 100% of 2020 tax (110% for higher incomes). Then, assuming no further income spikes in 2022, you want to withhold enough in 2022 to pay 90% of your 2022 tax bill when due in 2023.
tibbitts
Posts: 14365
Joined: Tue Feb 27, 2007 6:50 pm

Re: Who needs to pay quarterly taxes?

Post by tibbitts »

sk.dolcevita wrote: Tue Jul 20, 2021 6:53 pm
tibbitts wrote: Tue Jul 20, 2021 6:48 pm
sk.dolcevita wrote: Tue Jul 20, 2021 6:12 pm Adding another twist to OP's query - we just sold my rental property realizing significant capital gains. While my withholdings from our salaries are sufficient for the salary, we would owe a good additional sum when we file due to depreciation recapture and capital gains on top of it. Is an estimated payment required in this case? If yes, which would be the deadline if the sale was completed in the last week of June?

TIA.
If your salary is enough to cover the taxes just increase withholding. I have essentially 100% of my pension withheld, but it's not enough to cover my taxes, so I still have to make estimated payments. Withholding is superior to estimated payments due to not being quarter-specific.
With several hundred thousand dollars in capital gains, withholding is going to be a no-go. I have no problem sending in an estimated payment based on capital gains but want to make sure (1) it is required, an (2) the deadline for doing so if the house was sold in the last week on June (google is showing July 15 or Sep 15; if the former, I am late).
I'm not sure capital gains on a few hundred thousand dollars would be out of range of withholding for most Bogleheads (it would have been for me), but in any case you owe the money Sept 15 unless safe harbor applies. I also had an unusually large income (in 2020) and used up my safe harbor bullet on that, so for 2021 I'm having to pay as I go.

Don't wait until the last minute to make the payment; I usually pay a couple of weeks ahead of time.
lstone19
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Joined: Fri Nov 03, 2017 3:33 pm

Re: Who needs to pay quarterly taxes?

Post by lstone19 »

One important thing to keep in mind is that income taxes is a total amount for the year calculated on your total income for the year. There is no relationship between a tax payment and a particular item of income (so no particular type of income triggers a requirement to make quarterly payments).

As mentioned above, there is a minimum amount for which you have to make timely payment - generally the lower of 90% of the current year's tax and 100% of the previous year's tax (110% if your previous year's income was over $150K). That minimum can be met by a combination of withholding and estimated payments. So if withholding covers that minimum, then there is no need to make quarterly payments no matter how much income you have (example: last year's income was $100K with a $10K tax bottom line; this year, you have $11K withheld but also have $5M in capital gains. Since you had more than $10K withheld, you've met the minimum for timely payment and you can pay the balance on 4/15 even though it will be a huge amount. That you had this large capital gain does not on its own trigger a requirement to make quarterly payments).
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