Hi there,
I found the following rule from IRS' 2020 ES policy:
In most cases, you must pay estimated tax for 2020 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2020, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2020 tax return,
or b. 100% of the tax shown on your 2019 tax return. Your 2019 tax return must cover all 12 months.
Assume that 1) my income contains only salary in 2019, 2) my salary increased more than 10% in 2020, and 3) I have both salary and stock sale income in 2020.
Because of over 10% increase in salary and addition income from stock, 90% of my 2020 tax is greater than 100% of my 2019 tax.
And my tax withholding (merely from salary) for 2020 is then also higher than my 2019 tax.
Does this mean that no matter how much income I make from stock sale (even greater than my salary), I do not have to prepay tax because of Rule 2 does not apply?
Thank you very much for explaining. From the terms it seems so, but it looks abnormal.
