I sold my investment property in August 2020, and I didn't pay the estimated tax but increased my employer W2 federal tax withholding so that the tax I will totally pay in 2020 will be 110% of the taxes I paid last year. I know I won't pay the penalty because of estimated tax safe harbor, but I do have two questions that I cannot find the answers online:
1. In my case, do I still have to pay the interests for the months prior to August? My understanding is IRS averages the total taxes I pay in a year.
2. What is the difference between 'increasing the W2 withholding' and 'paying estimated tax in the 4th quarter"? These two approaches both can help me pay 110% tax of last year to take advantage of safe harbor for 2020 tax year. I assume IRS just checks the entire tax you pay in 2020 and wouldn't differentiate the paid taxes are from withholding or estimated tax payment?
