pay taxes from long term gains on a taxable account

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wstalcup
Posts: 57
Joined: Mon Sep 18, 2017 1:40 pm

pay taxes from long term gains on a taxable account

Post by wstalcup » Thu Oct 12, 2017 12:41 pm

Hi,
I am about to sell off some assets that have a long term gain of ~$46,000 (no short term gains) on a taxable account. For my situation, it looks like they will be taxed at 15% so I estimate I will owe the Infernal Revenue Service about $7,000.
I'm not retired and working full time and so far taxes have been withheld from my paycheck based on my yearly salary. Typically, I get around 1k back each year, so I'm afraid come tax time next year, I will end up owing them $6,000 and may get penalized for not coughing up more cash?

I guess I have to give them extra money now? what is the easiest way to do this, please?
Thanks!
Best investment advice: "Invest in your education" -Bill Gates

MotoTrojan
Posts: 872
Joined: Wed Feb 01, 2017 8:39 pm

Re: pay taxes from long term gains on a taxable account

Post by MotoTrojan » Thu Oct 12, 2017 12:49 pm

wstalcup wrote:
Thu Oct 12, 2017 12:41 pm
Hi,
I am about to sell off some assets that have a long term gain of ~$46,000 (no short term gains) on a taxable account. For my situation, it looks like they will be taxed at 15% so I estimate I will owe the Infernal Revenue Service about $7,000.
I'm not retired and working full time and so far taxes have been withheld from my paycheck based on my yearly salary. Typically, I get around 1k back each year, so I'm afraid come tax time next year, I will end up owing them $6,000 and may get penalized for not coughing up more cash?

I guess I have to give them extra money now? what is the easiest way to do this, please?
Thanks!
I believe you will be A-okay if your withholdings are within 90% of your actual tax-due, but I'd double check that. Alternatively one rule I know is accurate, is that you will not be penalized, no matter how much short you are, if your withholding this year is greater than your total-tax last year. I had a similar situation this year, and what I have done is setup my Federal & State withholdings to be $1800 extra for three pay-periods, which will put my withholdings over last years Federal & State taxes. This $5400 came out of an $8023 total LTCG tax I will owe, so I have invested the rest until tax-season :) (will pay with cash-flow).

wstalcup
Posts: 57
Joined: Mon Sep 18, 2017 1:40 pm

Re: pay taxes from long term gains on a taxable account

Post by wstalcup » Thu Oct 12, 2017 1:26 pm

MotoTrojan wrote:
Thu Oct 12, 2017 12:49 pm
wstalcup wrote:
Thu Oct 12, 2017 12:41 pm
Hi,
I am about to sell off some assets that have a long term gain of ~$46,000 (no short term gains) on a taxable account. For my situation, it looks like they will be taxed at 15% so I estimate I will owe the Infernal Revenue Service about $7,000.
I'm not retired and working full time and so far taxes have been withheld from my paycheck based on my yearly salary. Typically, I get around 1k back each year, so I'm afraid come tax time next year, I will end up owing them $6,000 and may get penalized for not coughing up more cash?

I guess I have to give them extra money now? what is the easiest way to do this, please?
Thanks!
I believe you will be A-okay if your withholdings are within 90% of your actual tax-due, but I'd double check that. Alternatively one rule I know is accurate, is that you will not be penalized, no matter how much short you are, if your withholding this year is greater than your total-tax last year. I had a similar situation this year, and what I have done is setup my Federal & State withholdings to be $1800 extra for three pay-periods, which will put my withholdings over last years Federal & State taxes. This $5400 came out of an $8023 total LTCG tax I will owe, so I have invested the rest until tax-season :) (will pay with cash-flow).
I don't believe my withholdings would be within 90% but I am fairly certain by withholding this year is greater than my total tax last year! Too be safe, I guess I could have my company withhold additional taxes for the reminder of this year..
Best investment advice: "Invest in your education" -Bill Gates

MotoTrojan
Posts: 872
Joined: Wed Feb 01, 2017 8:39 pm

Re: pay taxes from long term gains on a taxable account

Post by MotoTrojan » Thu Oct 12, 2017 2:02 pm

wstalcup wrote:
Thu Oct 12, 2017 1:26 pm
MotoTrojan wrote:
Thu Oct 12, 2017 12:49 pm
wstalcup wrote:
Thu Oct 12, 2017 12:41 pm
Hi,
I am about to sell off some assets that have a long term gain of ~$46,000 (no short term gains) on a taxable account. For my situation, it looks like they will be taxed at 15% so I estimate I will owe the Infernal Revenue Service about $7,000.
I'm not retired and working full time and so far taxes have been withheld from my paycheck based on my yearly salary. Typically, I get around 1k back each year, so I'm afraid come tax time next year, I will end up owing them $6,000 and may get penalized for not coughing up more cash?

I guess I have to give them extra money now? what is the easiest way to do this, please?
Thanks!
I believe you will be A-okay if your withholdings are within 90% of your actual tax-due, but I'd double check that. Alternatively one rule I know is accurate, is that you will not be penalized, no matter how much short you are, if your withholding this year is greater than your total-tax last year. I had a similar situation this year, and what I have done is setup my Federal & State withholdings to be $1800 extra for three pay-periods, which will put my withholdings over last years Federal & State taxes. This $5400 came out of an $8023 total LTCG tax I will owe, so I have invested the rest until tax-season :) (will pay with cash-flow).
I don't believe my withholdings would be within 90% but I am fairly certain by withholding this year is greater than my total tax last year! Too be safe, I guess I could have my company withhold additional taxes for the reminder of this year..
I'd of course double-check, but if your withholdings are going to be greater this year, then you are all set. Invest the cash if you please (and have cash-flow to recoup it in ~4 months), add it to your high-yield savings, etc... No reason to loan it interest-free to Uncle Sam.

kaneohe
Posts: 4451
Joined: Mon Sep 22, 2008 12:38 pm

Re: pay taxes from long term gains on a taxable account

Post by kaneohe » Thu Oct 12, 2017 6:33 pm

wstalcup wrote:
Thu Oct 12, 2017 1:26 pm
...........................................................
I don't believe my withholdings would be within 90% but I am fairly certain by withholding this year is greater than my total tax last year! Too be safe, I guess I could have my company withhold additional taxes for the reminder of this year..
if AGI last yr was > 150K, the withholding needs to be > 110% of last yr total tax.

bluedemon67
Posts: 9
Joined: Sat Dec 19, 2015 12:16 pm

Re: pay taxes from long term gains on a taxable account

Post by bluedemon67 » Thu Oct 12, 2017 6:48 pm

It is too late to make an estimate for the 3rd quarter, but if you will make up any underpayments in the 4th quarter- due on Jan 15- I doubt any penalty will be very much. As others have said you may already be exempted under the rules.

wstalcup
Posts: 57
Joined: Mon Sep 18, 2017 1:40 pm

Re: pay taxes from long term gains on a taxable account

Post by wstalcup » Fri Oct 13, 2017 9:58 am

bluedemon67 wrote:
Thu Oct 12, 2017 6:48 pm
It is too late to make an estimate for the 3rd quarter, but if you will make up any underpayments in the 4th quarter- due on Jan 15- I doubt any penalty will be very much. As others have said you may already be exempted under the rules.
hi,
I am really hoping to be exempted under the rules.. there's no way I want to pay a penalty even if it is very little. If I wanted to make an 4th quarter payment how would I do this? There seems to be a 1040-ES form for this, which I've never used and seems like such an incredible pain to do. I always just use turbotax to file taxes. Thanks!
Best investment advice: "Invest in your education" -Bill Gates

ThriftyPhD
Posts: 175
Joined: Mon Jul 31, 2017 10:43 am

Re: pay taxes from long term gains on a taxable account

Post by ThriftyPhD » Fri Oct 13, 2017 10:23 am

1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.

scrabbler1
Posts: 2004
Joined: Fri Nov 20, 2009 2:39 pm

Re: pay taxes from long term gains on a taxable account

Post by scrabbler1 » Fri Oct 13, 2017 10:30 am

MotoTrojan wrote:
Thu Oct 12, 2017 12:49 pm
wstalcup wrote:
Thu Oct 12, 2017 12:41 pm
Hi,
I am about to sell off some assets that have a long term gain of ~$46,000 (no short term gains) on a taxable account. For my situation, it looks like they will be taxed at 15% so I estimate I will owe the Infernal Revenue Service about $7,000.
I'm not retired and working full time and so far taxes have been withheld from my paycheck based on my yearly salary. Typically, I get around 1k back each year, so I'm afraid come tax time next year, I will end up owing them $6,000 and may get penalized for not coughing up more cash?

I guess I have to give them extra money now? what is the easiest way to do this, please?
Thanks!
I believe you will be A-okay if your withholdings are within 90% of your actual tax-due, but I'd double check that. Alternatively one rule I know is accurate, is that you will not be penalized, no matter how much short you are, if your withholding this year is greater than your total-tax last year. I had a similar situation this year, and what I have done is setup my Federal & State withholdings to be $1800 extra for three pay-periods, which will put my withholdings over last years Federal & State taxes. This $5400 came out of an $8023 total LTCG tax I will owe, so I have invested the rest until tax-season :) (will pay with cash-flow).
I think you mean the more inclusive "prepaid taxes" instead of simply "withholding." Back in 2008, I received a large windfall in early November from cashing out a huge amount of employer stock. But all I had to do to reach a "safe harbor" was to make sure my prepaid taxes were greater than my tax bill from the prior year (2007). My tax bill in 2007 was just over $7,000 and my taxes withheld in 2008 were just over $3,000, so I sent in a check for $4,000 in estimated taxes for the 4th quarter 2008. My total prepaid taxes exceeded my 2007 tax bill by a few hundred dollars so I was fine. The following April, I sent in a big check for the rest of the taxes due, about $46,000. Meanwhile, those $46,000 earned interest in a (tax-free) bond fund for the next 5 months.

wstalcup
Posts: 57
Joined: Mon Sep 18, 2017 1:40 pm

Re: pay taxes from long term gains on a taxable account

Post by wstalcup » Fri Oct 13, 2017 11:09 am

ThriftyPhD wrote:
Fri Oct 13, 2017 10:23 am
1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.
ok! wow! I walked through the steps.. and does look easy! thanks!

since I only made this money during the 4th quarter.. its ok that I only submit the extra taxes now? (seems like they want you to cough up cash each quarter)

also, by doing this, do you think it will make filing with turbotax next year a lot harder? or probably no issue?
Best investment advice: "Invest in your education" -Bill Gates

scrabbler1
Posts: 2004
Joined: Fri Nov 20, 2009 2:39 pm

Re: pay taxes from long term gains on a taxable account

Post by scrabbler1 » Fri Oct 13, 2017 11:25 am

wstalcup wrote:
Fri Oct 13, 2017 11:09 am
ThriftyPhD wrote:
Fri Oct 13, 2017 10:23 am
1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.
ok! wow! I walked through the steps.. and does look easy! thanks!

since I only made this money during the 4th quarter.. its ok that I only submit the extra taxes now? (seems like they want you to cough up cash each quarter)

also, by doing this, do you think it will make filing with turbotax next year a lot harder? or probably no issue?
Because the income-generating event took place in the 4th quarter ("quarter" is a misnomer because it covers 9/1-12/31, 4 months), you can't be expected to make an estimated tax payment for previous quarters. In this regard, your situation was like mine in 2008. The 4th quarter payment isn't due until the middle of January of 2018.

I began using the online method of making estimated tax payments at the start of this year. It's a lot easier and more reliable than mailing a check. If you have to make one for your state and you plan to itemize your deductions on your federal return, then make sure you make the payment before 12/31. Be aware that your state may not take the online payment until January even if you submit it now, so technically it may not be deductible in 2017.

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Tyler Aspect
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Re: pay taxes from long term gains on a taxable account

Post by Tyler Aspect » Fri Oct 13, 2017 11:40 am

You can just pay extra through a new W4 for your employer.
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MotoTrojan
Posts: 872
Joined: Wed Feb 01, 2017 8:39 pm

Re: pay taxes from long term gains on a taxable account

Post by MotoTrojan » Fri Oct 13, 2017 12:28 pm

scrabbler1 wrote:
Fri Oct 13, 2017 10:30 am
MotoTrojan wrote:
Thu Oct 12, 2017 12:49 pm
wstalcup wrote:
Thu Oct 12, 2017 12:41 pm
Hi,
I am about to sell off some assets that have a long term gain of ~$46,000 (no short term gains) on a taxable account. For my situation, it looks like they will be taxed at 15% so I estimate I will owe the Infernal Revenue Service about $7,000.
I'm not retired and working full time and so far taxes have been withheld from my paycheck based on my yearly salary. Typically, I get around 1k back each year, so I'm afraid come tax time next year, I will end up owing them $6,000 and may get penalized for not coughing up more cash?

I guess I have to give them extra money now? what is the easiest way to do this, please?
Thanks!
I believe you will be A-okay if your withholdings are within 90% of your actual tax-due, but I'd double check that. Alternatively one rule I know is accurate, is that you will not be penalized, no matter how much short you are, if your withholding this year is greater than your total-tax last year. I had a similar situation this year, and what I have done is setup my Federal & State withholdings to be $1800 extra for three pay-periods, which will put my withholdings over last years Federal & State taxes. This $5400 came out of an $8023 total LTCG tax I will owe, so I have invested the rest until tax-season :) (will pay with cash-flow).
I think you mean the more inclusive "prepaid taxes" instead of simply "withholding." Back in 2008, I received a large windfall in early November from cashing out a huge amount of employer stock. But all I had to do to reach a "safe harbor" was to make sure my prepaid taxes were greater than my tax bill from the prior year (2007). My tax bill in 2007 was just over $7,000 and my taxes withheld in 2008 were just over $3,000, so I sent in a check for $4,000 in estimated taxes for the 4th quarter 2008. My total prepaid taxes exceeded my 2007 tax bill by a few hundred dollars so I was fine. The following April, I sent in a big check for the rest of the taxes due, about $46,000. Meanwhile, those $46,000 earned interest in a (tax-free) bond fund for the next 5 months.
I meant what I said, as I hadn't mentioned sending in a check for extra, but yes you are correct. I was suggesting the OP simply increase their withholding to exceed the previous years taxes, as that involves less paperwork/mail to the IRS. Every employee will vary on difficulty though; mine uses Gusto and allows me to change my withholding in 30 seconds online, every pay-period if I so desire.

ThriftyPhD
Posts: 175
Joined: Mon Jul 31, 2017 10:43 am

Re: pay taxes from long term gains on a taxable account

Post by ThriftyPhD » Fri Oct 13, 2017 12:35 pm

wstalcup wrote:
Fri Oct 13, 2017 11:09 am
ThriftyPhD wrote:
Fri Oct 13, 2017 10:23 am
1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.
ok! wow! I walked through the steps.. and does look easy! thanks!

since I only made this money during the 4th quarter.. its ok that I only submit the extra taxes now? (seems like they want you to cough up cash each quarter)

also, by doing this, do you think it will make filing with turbotax next year a lot harder? or probably no issue?
4th quarter is due Jan 15 (Jan 16th this year). Pay it ~ 1 week early to make sure it goes through and gets credited by the deadline. Also, as mentioned, you might want to pay the state before the end of the year if you want to claim it on this years federal taxes. Your state estimated payment may be as easy as the federal, or more annoying. Varies from state to state, so take a look now to know how to do it (assuming you have to pay state income tax). This may also have a delay between when you file it and when it is credited, so give yourself a little extra time.

GMT-8
Posts: 121
Joined: Fri Mar 26, 2010 5:11 pm

Re: pay taxes from long term gains on a taxable account

Post by GMT-8 » Fri Oct 13, 2017 12:48 pm

I know you stated you are opposed to any penalty but ...

I got in the situation you are in, with a large unexpected capital gains from one of my Vanguard funds declaring "Surprise!" near year end. I whined and complained to my tax man, he said Relax, the holidays are here. He calculated that I would I have a penalty of $14 or something like that. He said in most cases it's hardly worth the trouble to try to prepay.

Your number may vary but it's not onerous. The IRS is occasionally reasonable and this is one of those instances.

Cheers,

GMT-8

wstalcup
Posts: 57
Joined: Mon Sep 18, 2017 1:40 pm

Re: pay taxes from long term gains on a taxable account

Post by wstalcup » Fri Oct 13, 2017 1:14 pm

good to know! Thanks all!
Best investment advice: "Invest in your education" -Bill Gates

pshonore
Posts: 5750
Joined: Sun Jun 28, 2009 2:21 pm

Re: pay taxes from long term gains on a taxable account

Post by pshonore » Fri Oct 13, 2017 1:27 pm

scrabbler1 wrote:
Fri Oct 13, 2017 11:25 am
wstalcup wrote:
Fri Oct 13, 2017 11:09 am
ThriftyPhD wrote:
Fri Oct 13, 2017 10:23 am
1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.
ok! wow! I walked through the steps.. and does look easy! thanks!

since I only made this money during the 4th quarter.. its ok that I only submit the extra taxes now? (seems like they want you to cough up cash each quarter)

also, by doing this, do you think it will make filing with turbotax next year a lot harder? or probably no issue?
Because the income-generating event took place in the 4th quarter ("quarter" is a misnomer because it covers 9/1-12/31, 4 months), you can't be expected to make an estimated tax payment for previous quarters. In this regard, your situation was like mine in 2008. The 4th quarter payment isn't due until the middle of January of 2018.

I began using the online method of making estimated tax payments at the start of this year. It's a lot easier and more reliable than mailing a check. If you have to make one for your state and you plan to itemize your deductions on your federal return, then make sure you make the payment before 12/31. Be aware that your state may not take the online payment until January even if you submit it now, so technically it may not be deductible in 2017.
Just a reminder that the IRS will assume your income was earned equally throughout the year unless you file Form 2210 and show that it was not. If one increases payroll withholding, they will assume the withholding was done equally as well. That's the easiest solution. Making a January 4th quarter estimated payment gets you half way there.

MarkNYC
Posts: 1203
Joined: Mon May 05, 2008 7:58 pm

Re: pay taxes from long term gains on a taxable account

Post by MarkNYC » Fri Oct 13, 2017 7:58 pm

ThriftyPhD wrote:
Fri Oct 13, 2017 12:35 pm
wstalcup wrote:
Fri Oct 13, 2017 11:09 am
ThriftyPhD wrote:
Fri Oct 13, 2017 10:23 am
1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.
ok! wow! I walked through the steps.. and does look easy! thanks!

since I only made this money during the 4th quarter.. its ok that I only submit the extra taxes now? (seems like they want you to cough up cash each quarter)

also, by doing this, do you think it will make filing with turbotax next year a lot harder? or probably no issue?
4th quarter is due Jan 15 (Jan 16th this year). Pay it ~ 1 week early to make sure it goes through and gets credited by the deadline.
When mailing federal income tax payments, either estimated tax payments or payments with the filing of a tax return, in order to be considered timely the payment need only be mailed by the due date, not received by the IRS by the due date.

ThriftyPhD
Posts: 175
Joined: Mon Jul 31, 2017 10:43 am

Re: pay taxes from long term gains on a taxable account

Post by ThriftyPhD » Fri Oct 13, 2017 10:16 pm

MarkNYC wrote:
Fri Oct 13, 2017 7:58 pm
ThriftyPhD wrote:
Fri Oct 13, 2017 12:35 pm
wstalcup wrote:
Fri Oct 13, 2017 11:09 am
ThriftyPhD wrote:
Fri Oct 13, 2017 10:23 am
1040-ES is very easy to use. It can be done online, only a couple pages with minimal info. The other option is to increase withholding on your W4. Don't forget state taxes if that's an issue for you too.
ok! wow! I walked through the steps.. and does look easy! thanks!

since I only made this money during the 4th quarter.. its ok that I only submit the extra taxes now? (seems like they want you to cough up cash each quarter)

also, by doing this, do you think it will make filing with turbotax next year a lot harder? or probably no issue?
4th quarter is due Jan 15 (Jan 16th this year). Pay it ~ 1 week early to make sure it goes through and gets credited by the deadline.
When mailing federal income tax payments, either estimated tax payments or payments with the filing of a tax return, in order to be considered timely the payment need only be mailed by the due date, not received by the IRS by the due date.
True, I was taking about the online payment where they credit it 1-2 business days later if you do bank payment, or charge a transaction fee to do credit card. If mailing it's based on the day of postage.

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