7 replies to this topic

[gm_general]

If you sell a position held in a taxable account and make a sizeable capital gain are you expected to pay at that time or defer payment till January? Usually I am trading in my 401K.

[Chilidawgz]

If you sell a position held in a taxable account and make a sizeable capital gain are you expected to pay at that time or defer payment till January? Usually I am trading in my 401K.

I am not an expert on this, wifey does all the bookwork in the house. I think if you made a sizable gain outside a tax sheltered account, you need to pay an estimated tax before January. They may hit you with a penalty if you owe a sizable amount at the end of the year.

Edited by Chilidawgz, 04 October 2022 - 11:34 AM.

[An Ant]

If you sell a position held in a taxable account and make a sizeable capital gain are you expected to pay at that time or defer payment till January? Usually I am trading in my 401K.

I am not an expert on this, wifey does all the bookwork in the house. I think if you made a sizable gain outside a tax sheltered account, you need to pay an estimated tax before January. They may hit you with a penalty if you owe a sizable amount at the end of the year.

[An Ant]

I think that's correct.

In fact it may even be by quarter. If you made sizable capital gains in taxable account in January then you can't wait till next January.

Remember that income tax is pay as you go.

Of course, verify this and any other advice.

[Rogerdodger]

I trade in a Roth which eliminates many problems,

However,  tax law changes constantly.

 

A tax professional is a very inexpensive option compared to innocent errors or unknown changes in tax law.

[pdx5]

You pay estimated tax ON NEXT TAX DATE AFTER YOUR TRANSACTION DATE.
For example if you cashed in a large caital gain on May 23, you are required to pay estimated tax on June 15, Sept 15, Jan 15 & April 15 of next year, in equal amounts.

If your capital gain was executed on Aug 25th, you start equal payments on Sept 15, Jan 15 and April 15t. So you will make 3 equal payments.

If you execute another cap gain on Dec 21st, you will make 2 estimated tax payments Jan 15 & April 15.

IRS has a convenient & secure on line payment web site.

I am not a tax professional but I have followed this procedure many times and was never penalized for underpayment of tax.

[K Wave]

This is how it works for estimated taxes.

 

As long as you have paid in at least 100% of your prior year tax liability, you could make $100 million and not have to pay until April 15, although if you made that much it would jump to 110%

 

I happened to know this off the top of my head since I have been doing the family's fairly complicated taxes for as long as I can remember....but seriously...Google is pretty easy.

 

But certainly, if you have any doubt, talk with a Tax pro.

 

 

https://www.irs.gov/...for-individuals

Penalties related to estimated taxes

If a taxpayer underpaid their taxes they may have to pay a penalty. This applies whether they paid through withholding or through estimated tax payments. A penalty may also apply for late estimated tax payments even if someone is due a refund when they file their tax return.

In general, taxpayers don’t have to pay a penalty if they meet any of these conditions:

• They owe less than $1,000 in tax with their tax return.
• Throughout the year, they paid the smaller of these two amounts:
  • at least 90 percent (however, see 2018 Penalty Relief, below) of the tax for the current year
  • 100 percent of the tax shown on their tax return for the prior year – this can increase to 110 percent based on adjusted gross income

Edited by K Wave, 05 October 2022 - 07:35 AM.

[pdx5]

"As long as you have paid in at least 100% of your prior year tax liability, you could make $100 million and not have to pay until April 15."

This is correct in my experience of doing my own taxes since 1961.
For 2021 taxes I did not use this rule because the tax owed was large and it was more convenient to make quarterly estimated tax payments.