I may realize capital gains exceeding my w2 income, maybe late in the year, and maybe not at all. How can I avoid late payment penalty?

[u358]

Last year (2024) I had a one-time capital gain and did not pay estimated tax. I was covered under safe harbor rules and I did not owe a late payment penalty in 2024. As I understand it, since my 2024 w2 withholding happened to exceed 110% of my 2023 tax, I got safe harbor for 2024.

However, in 2025, withholding to exceed 110% of my 2024 tax burden is unrealistic. My 2024 capital gains made my 2024 tax bill abnormally large so I will not have safe harbor for 2025 unless I go to extremes in w2 withholding. Turbo-tax generated (4) 2025 estimated tax coupons, and this too is way overkill if I just work w2 and never sell any assets. If I don't sell assets I'll probably have a refund. But if I do have a large sale again I'll need to make estimated tax payments, and I don't know if or when I'll realize a capital gain in 2025. That's contingent on many things.

Qs: If I realize a capital gain in December, 2025, can I just pay estimated tax for the gain at that time and not incur late payment penalty and interest? Or do I need to start paying estimated tax in April even though I may not sell any assets until December or perhaps not sell any at all? Do estimated tax payments count towards the 110% safe harbor the same as w2 withholding?

[DavidD66]

If you have a large capital gain in December of 2025 you can make a fourth quarter estimated tax payment to cover the tax.  Fourth quarter estimated tax payments are due January 15, 2026.  You will need to annualize you income on Form 2210 - Underpayment of Estimated Tax to show the gain occurred in the fourth quarter, otherwise the IRS will assume the income was earned ratably over the year.