Having an issue with an underpayment penalty.
Doing my taxes step by step. When I enter ALMOST all of my income, deductions, credits, etc. I have an Federal Tax DUE, but NO penalty
However, when I then enter a very large capital gain (that occurred in December and is ~1/3 of total AGI), AND I enter the corresponding estimated tax payment that I made in December (that more than covers that additional tax from this gain, so much so, that I now have a refund), but I now DO have a penalty....
How is this possible? I was good to go with no penalty, got a gain late in year (and made corresponding estimated payment as soon as I knew about it), but now have a large penalty.
I tried the Annualized Income Method, and it came back with the same penalty. Added in the Actual Withholding method, and it reduced it some but not entirely.
Two questions:
- What am I missing? per my description above, I paid the taxes either through withholding or estimated tax payments, as my income occurred. Is there any other way to try to reduce penalty?
- Even if I hypothetically paid the entire estimated tax payment in Q1, the penalty is still there. But again, I'm getting a refund.... so what could I have done differently to avoid the penalty?
