Can I adjust estimated tax payments?

[mellynlee]

I know I need to make estimated tax payments this year, and will be making much less than last year, so am trying to estimate 100% tax for this year (2025). I paid equal amounts in april and june. However, we had a large capital gain in july that was unaccounted for. I went through the TT Estimated tax worksheets, and entered a new "investment" amount, and it came up with much larger payments for September and January.

I had thought that the estimated payments needed to be "consistent" throughout the year? Is it OK to pay smaller estimates in april and june, but then have much larger estimated tax payments in september and january? Will this trigger a penalty?

If it does, how else can this be remedied?

[VolvoGirl]

No that doesn't matter.  The estimates are actually optional to pay.  They didn't get sent with your return so the IRS won't be expecting them.  You can send in different amounts each quarter.  You can just cross out the amount and write in a new amount or print out new 1040ES slips.  

[fanfare]

If your periodic withholding and estimates in 2025 are at least 100% / 4 = 25% ( 110% / 4 for certain high income taxpayers) of your 2024 tax, there will be no penalty on your 2025 tax return, regardless of any jump in income.
you are protected from a sudden capital gain or Roth conversion at year end.
you know your prior year's tax when you file by April 15, which is also the first estimated tax payment due date.

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IRS requires you to establish your Required Annual Payment for the year and pay as you go.

You can base your estimate on prior year's tax , or 90% of this year's tax, whichever is smaller.
each period your withholding and estimated tax paid must be at least 25% of the estimate, even if your income is uneven. [Otherwise, you may be penalized.] this is the simplified method, default.
Payments above 25% are carried into the next period.
if your estimate is based on this year's tax and turns out to be wrong you may be penalized.
you can compensate by overestimating.
if your estimate is based on prior year's tax, you know that when you file by April 15, which is also the first estimated tax payment due date. How convenient.

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Form 2210 Schedule AI may help your situation but it is a more complex rule.

@mellynlee 

[fanfare]

What is your 2024 tax ? do you have withholding taken in 2025? Do you usually get a refund?
If your total 2025 withholding alone is 100 % of that tax( 110% if your 2024 AGI is over $150,000),

you don't need to make estimated tax payments. This is the prior year's tax rule.

@mellynlee 

[mellynlee]

So we owed a LOT of taxes last year. I do NOT want to do the usual rule of paying 110% of last year's taxes for this year, because we won't owe nearly as much this year. We have had to pay $ every year for the past 4-5 years.

I used TT to estimate the taxes for this year, and it came out with an even amount to pay for all 4 payments. I already paid those amounts in April and June of this year. However, as I mentioned, we had a lot of capital gains in july, and so I reentered these newly modified amounts into TT. It gave me a MUCH larger amount to pay for Payments 3 and 4 (sept and jan '26).

I had also thought that the 4 payments were supposed to be "evenly" distributed in order to avoid a penalty. However @VolvoGirl mentioned that it doesn't matter?

If I adjust my 3rd and 4th payments to be the larger amounts to cover the capital gain in July, will I be avoiding the penalty?

I also understood that we can take more $ out of our paycheck, and that will be considered "evenly distributed". Unfortunately, we don't have enough in the paycheck to cover the capital gain taxes.

[VolvoGirl]

I just meant it doesn't matter if you change the amounts and not pay the same amount each quarter.  Yes you are suppose to pay in evenly or really as you get the income.  Yes W2 and 1099 withholding is considered to be paid evenly during the year.   If Turbo Tax ends up giving you a penalty on your tax return next year you might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

Here is IRS Form 2210
https://www.irs.gov/pub/irs-pdf/f2210.pdf

IRS Form 2210 Instructions
https://www.irs.gov/pub/irs-pdf/i2210.pdf

[mellynlee]

Hi,

You said:

Yes you are suppose to pay in evenly or really as you get the income

If I don't get this income until after I made my 2nd estimated tax payment in June, can I adjust my 3rd (and 4th) estimated tax payments to account for this income increase? (and thereby avoid penalties?)