No, nothing will be doubled. The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax.
When you use the Annualized Income method, you are telling the IRS that you did not receive your income evenly throughout the year and therefore you penalty should be lower. If your total income was 100K, you would be expected to have paid the tax due on 25K each quarter. However, if you earned 80K of the 100K in the 4th quarter, this would essentially lower or possibly even remove the penalty.
Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method. Use Form 2210 - Underpayment of Estimated Tax to see if you owe a penalty for underpaying your estimated tax. The law allows the IRS to waive the penalty if:
- You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
- You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.
You can choose to let the IRS calculate the penalty, or request a waiver of the penalty or do what you are doing and use the Annualized Income Form to calculate and pay the penalty. Long-Term capital gain rates are generally much lower than the short-term rates, so the timing of those earnings will have an effect on the penalty calculation. But the total income on the AI form will be the same as your AGI on the tax return.
For more information, refer to the Instructions for Form 2210
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