Estimated tax minimum

[permda]

I sold a rental property in 2020 and have a good amount of capital gains.  I need to make a estimated tax payment before January 15th.  If what I pay now plus my withholding amount total more than 110% of my last year total tax, will that avoid all estimated tax penalties?

Thanks!

[Critter-3]

I hope you meant you sold in 2021 and yes ... as long as you pay 110% of last year's tax liability you may escape the penalty.

[rjs]

I also hope you meant 2021. It's much too late to make an estimated tax payment for 2020. If you have not yet paid your 2020 tax you just have to file the tax return and pay the tax as soon as possible, and you cannot avoid penalties for late filing and late payment.

If you are talking about 2021, estimated tax payments do not count towards the 110% of your 2020 tax. To be sure of avoiding the penalty your withholding and tax credits must be at least 110% of your 2020 tax. You can also avoid the penalty if your withholding and tax credits are at least 90% of your 2021 tax, or if the amount you owe is less than $1,000.

I am using the 110% figure because that's what you stated. If your 2020 AGI was $150,000 or less ($75,000 if married filing separately) the requirement is 100% of your 2020 tax.

If you sold the property late in the year, you may be able to reduce or eliminate the penalty by using the annualized income method on Form 2210. TurboTax will walk you through it.

[permda]

Yes, Sold in 2021. Sorry about the typo.

Thank you very much. I will make a payment by Jan 18, 2022 so that I am over the 110% of 2020 total tax.

[permda]

So I followed the advice given and paid estimated taxes over 110% of last years tax liability, but Turbotax is still saying I owe a penalty which is not correct.  I sold a rental property in Q4 which is why I had to make a est payment.  Please help on how to fix this.

[rjs]

You fix it, or at least reduce the penalty, by using the annualized income method in the "Underpayment penalties" section in TurboTax. You made an estimated tax payment at the end of the year. The annualized income method will take into account that the large capital gain was late in the year.

[permda]

Thank you!

To do that I would have to go through all my dividends and interest from all my investment accounts to input my earnings each quarter as well as breaking down my salary from my regular job for withholdings and income by quarter.  It is really a limitation in TurboTax.  I will let the IRS calculate the penalty and they will see that I do not owe one.

[rjs]

It's not a limitation in TurboTax. That's the way IRS Form 2210 Schedule AI works. TurboTax is just following the IRS procedure.