@jonpagel wrote:
The big question which I believe you answered is do I need to give the irs a big chunk of money right now or can I wait until I do my taxes for 2022 (after the new year)…
The tax system is supposed to be pay-as-you-go. If you owe too much with your tax return, you can be penalized for under-payment even if you pay in full when you file your return. If you have a lump sum of income that requires an estimated tax payment, that should generally be made in the quarter in which the lump sum occurs. (For a lump sum of income between Jun 1-Aug 31, the estimated payment is due Sept 15.)
If you increase your W-2 job withholding to cover the tax from the real estate sale, that means the IRS will be getting their money spread out from August to December. That's not quite the same as getting an estimated payment on 9/15, but it's better than not paying anything and owing a large sum when you file your return. Doing that will probably protect you from an under-payment penalty.
In the worst case scenario, the IRS could consider you to be slightly underpaid from September 15 to December 31. I'm going to estimate you owe about $70,000 from capital gains tax and net investment tax. If you increase your W-2 withholding by $18,000 per month for September-December, you are arguably $63,000 short in September, $45,000 short in October, $27,000 short in November, and $9,000 short in December. I don't know if the IRS will actually look at it this way. But if they do assess a penalty and you have never paid a penalty before, you can request a first-time abatement.
Or, leave your W-4 alone and make the estimated payment directly to the IRS by September 15. If you over pay the estimate, you will get the difference back as your tax refund.
