I have plans to dispose of some stocks (RSUs) in the calendar year that will anticipate realizing a fairly large capital gain.
I understand I can either make quarterly estimate payment (in this case for the quarter the gain would be realized), or alternatively I can adjust my W-4 and MI W-4 (I'm resident in Michigan) to increase my federal and state W-2 income withholdings to make up for the shortfall in my capital gains tax liability.
It seems to me increasing the withholding make more sense, since there are still half the year remaining to have my increased withholding kick in. And I don't have experience making estimate tax payments previously, and don't want to introduce a new process (and deadlines) if I don't have to. It also seems once you make at least one quarterly estimated tax payment, you now have to check whether you can use the Annualized Income Installment Method to see whether you owe penalty for the underpayment (in my case no payment) for the other 3 quarters.
This is more of a general question for those of you that both work full-time with a W-2, and only occasionally have capital gains (via stocks, selling homes, etc). What is the easier way to make sure you don't underpay your tax? I'm slightly perplexed by the annualized income installment check. It seems to make more sense for folks who earn income and pay estimated tax on it throughout the year. But if you only sell stock once a year (and this is also not a pre-determined decision, for example I might not sell if the price drops), why should I be concerned with making equal payments throughout the other 3 quarters, rather just making sure I pay my tax for the quarter the gain was realized?
Or is this just easier to increase withholdings on my paycheck and not deal with estimated tax?
