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Do I need to pay quarterly capital gains tax payments for large (>$10,000) short term gains I made on stocks? Or, do I file my annual tax return and pay next year?

My work withholds monthly taxes for W2 income, but I have not yet paid taxes on the gains I made from this calendar year's stock sales
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3 Replies
rjs
Level 15
Level 15

Do I need to pay quarterly capital gains tax payments for large (>$10,000) short term gains I made on stocks? Or, do I file my annual tax return and pay next year?

Income tax is "pay as you go." You are supposed to pay tax on your income as you earn it during the year. Estimated tax payments should be made as follows. Note that the payment periods are not calendar quarters.


Income earned Jan 1 - Mar 31, pay by Apr 15
Income earned Apr 1 - May 31, pay by Jun 15
Income earned Jun 1 - Aug 31, pay by Sep 15
Income earned Sep 1 - Dec 31, pay by Jan 15 next year


You have to pay a penalty if you do not make timely payments.


Another option, instead of making quarterly estimated tax payments, is to give your employer a new Form W-4 to increase the withholding from your pay to cover the tax on the capital gains. An advantage of doing it this way is that it doesn't matter when the tax is actually withheld, as long as the total withholding for the year is enough. Tax withheld from your pay is always treated as having been paid on time, even if a larger portion of it is withheld late in the year, so you can avoid a penalty.


For all the details on tax payment requirements, see IRS Publication 505, "Tax Withholding and Estimated Tax."

 

Do I need to pay quarterly capital gains tax payments for large (>$10,000) short term gains I made on stocks? Or, do I file my annual tax return and pay next year?

I would send some in right away.  Maybe 10-20%?  Just use the next 1040ES slip

https://www.irs.gov/pub/irs-pdf/f1040es.pdf 

Do I need to pay quarterly capital gains tax payments for large (>$10,000) short term gains I made on stocks? Or, do I file my annual tax return and pay next year?

there is a way to avoid penalties no matter how much your income taxes increase over the prior year.

1) withholding and timely estimated tax payments for 2021 equal or exceed 90% of your 2021 tax. 

trying to determine what this will be is usually difficult so the IRS gives you another option

2) withholding and timely estimated tax payments for 2021 equal or exceed 100% of your 2020 tax. the 100% becomes 110% if your 2020 adjusted gross income is $150,000 or more.  This is the option most commonly used to avoid penalties 

 

to avoid estimated tax payments you can revise your w-4 so your withholding will hit  the target in 2) above 

 

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