If i have made substantial gains on short term sto...
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If i have made substantial gains on short term stock sales. Do I need to pay quarterly to not be penalized?

I have made over $150k in short term gains this year what do i need to do to avoid any penalties?
2 Replies
Level 15

If i have made substantial gains on short term stock sales. Do I need to pay quarterly to not be penalized?

What are estimated taxes?


Do I need to make estimated tax payments to the IRS?

For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2015  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits. 
- 2. You expect your withholding and credits to be less than the smaller of: 
    90% of the tax to be shown on your current year’s tax return, or 
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)



How do I make estimated tax payments?



Level 15
Level 15

If i have made substantial gains on short term stock sales. Do I need to pay quarterly to not be penalized?

You probably cannot completely avoid any penalties. You do have to make quarterly tax payments, as Critter-3 has explained. But quarterly payments are supposed to be made quarterly, not all at the end of the year. Penalties are based on when the payments are made, not just the amounts. You have already missed the first three quarterly payments. As the IRS puts it, "The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year."

To try to reduce your penalties, figure out approximately how much tax you will owe on your gains from January through August, and pay it now. Then make another payment by January 15, 2021 to cover the tax on your gains from September through December. (The "quarters" are not really equal calendar quarters.)

There is a trick you can use to further reduce the penalties if you have a W-2 job, and if you can afford to do this. Have your employer withhold a large amount of federal tax from your pay for the rest of the year. For calculating the penalties, the withholding is treated as if it had been paid evenly over the course of the year, instead of only in November and December, so it will be as if you had made earlier payments. You can subtract the extra withholding from the payment that you make now. If you do this, don't forget to change your withholding again starting in January.

If all your short-term gains happen to have been after August 31, you can just pay all the tax by January 15, and use a special calculation on your tax return to reduced or eliminate the penalties. But it doesn't sound like all your gains were after August.

After you file your tax return for 2020 the IRS will send you a bill for the penalties.


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