Quarterly Estimated Tax Payments for Capital Gains

[ChicagoJ]

Hello!  I am working on my 2020 taxes (TurboTax Deluxe), and expect to file by the April deadline.  This month (March, 2021), I sold some stock and I was fortunate to have $40,000 in capital gains.  I know that I will be assessed a fee if I wait until next year (when I am doing my 2021 taxes) to pay the tax on this amount, and I should prepay an estimate of the tax before April 2021.  I have some question that I am hoping the community can help answer:

1) Am I correct about needing to prepay estimated taxes now (and not waiting until 2021)?  I won't have enough of my income tax withholdings from my "regular job" to cover the taxes from the Capital Gains.

2) What's the best way to estimate how much I should pay?  Part of the capital gains are long-term (18% rate, I believe) and part of the capital gains are from short-term holdings.  I'm not sure what the tax rate should be.

3) I assume that I can use TurboTax to facilitate my quarterly tax estimate payments.  Is this the case?  Where do I go to do this?  

4)  Can I pay the estimate for these 2021 Q1 Capital Gains (the $40,000) along with my 2020 tax returns, which I am working on now?  Or do I need to pay and submit this estimate completely separately from my 2020 taxes?

Thanks, all!!

[HelenC12]

In general, you may owe the penalty for 2020 if the total of your withholding and timely estimated tax payments didn't equal at least the smaller of:

1. 90% of your 2020 tax, or

2. 100% of your 2019 tax. Your 2019 tax return must cover a 12-month period.

Special rules for certain individuals.

• Different percentages are used for farmers and fishermen, and certain higher income taxpayers.

Here are the answers to your questions.

#1 Yes,, 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.

#2 TurboTax can help you calculate your 2021 estimated income taxes. See How does TurboTax calculate my estimated tax payments?

#3 Yes, TurboTax helps you with your estimated tax payments. See #2 above and How do I print estimated tax vouchers for my 2021 taxes? or How do I make estimated tax payments?

#4 Pay the 1st quarter 2021 estimated income tax separately. Do not include it with 2020 your income tax return. See  How do I make estimated tax payments?

[LP1968]

Hi. I'd like to clarify an important detail about the exact amount to pay for Quarterly Estimated Tax Payments for Capital Gains. 

Lets use the example above where someone has $40,000 in (all say long-term) capital gains in Q1 2021, and the federal tax due is exactly $6,000 (i.e. 15% of  $40,000). 

is it need to pay IRS all $6,000 by April 15th? or can pay only $1,500 by April 15th, and the remaining in 3 equal amounts in each of the next 3 Quarterly Estimated Tax Payment dates?  

Also, lets also say this person is a CA resident. so, there is another $4,0000 (i.e. 10%) in CA-state tax.  is it need to pay CA FTB all $4,000 by April 15th or pay $1,200 (30%) now and the rest according to remaining Quarterly Estimated Tax Payment requirements stated in https://www.ftb.ca.gov/pay/estimated-tax-payments.html

Please advise! Thanks! 

[gloriah5200]

You can calculate estimated tax payments and vouchers once you have completed your  return.  You will use the 1040-ES worksheet and payment vouchers and once completed, they will print with your return.  You can enter "1040-ES" or "2021 estimated payments" in the search bar in the return.

Our tax system is a "this is a "pay-as-you-go" tax system.

You are expected to pay taxes (withholding) on the income as you earn it throughout the year.  That applies to both IRS and CA FTB.

General Rule

In most cases, you must pay estimated tax for 2021 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2021, after subtracting your withholding and refundable credits.

2. You expect your withholding and refundable credits to be less than the smaller of:

• a. 90% of the tax to be shown on your 2021 tax return, or
• b. 100% of the tax shown on your 2020 tax return. Your 2020 tax return must cover all 12 months.

Note.

These percentages may be different if you are a farmer, fisherman, or higher income taxpayer.

Exception. You don’t have to pay estimated tax for 2021 if you were a U.S. citizen or resident alien for all of 2020 and you had no tax liability for the full 12-month 2020 tax year. You had no tax liability for 2020 if your total tax was zero or you didn’t have to file an income tax return.

Higher income taxpayers.

If your adjusted gross income (AGI) for 2020 was more than $150,000 ($75,000 if your filing status for 2021 is married filing separately), substitute 110% for 100% in (2b) under General Rule, earlier. This rule doesn’t apply to farmers or fishermen.

In order to get as close as  you can to paying in the correct amount of estimated tax payments for 2021, you can completed the 1040-ES worksheet in the estimated payments section of the return,  You can either enter  your total income and estimate taxes on capital gains the same as your ordinary income or you can go line by line and estimate the total income without the capital gains and then, on line 10 of the worksheet enter your estimated capital gains tax for 2021.

You can complete it as specific or as general as you want.

Then, the software will calculate the taxes paid evenly throughout the year, and if you make that choice in next year's return, you should be close.  Otherwise, you could manually make copies of the 1040-ES worksheet and complete one for each quarter and that way you can build it in as you will be earning it.

For additional information, please refer to the following link:

IRS Instructions for Form 1040-ES

You can use these same steps with the CA  FTB estimated taxes:

Please refer to the following link for the CA instructions for 540-ES, estimated payment vouchers:

CA FTB Instructions for 540-ES

[leaderboard]

I had a large LT cap gain last week.  Is it necessary to pay an estimated tax on that gain now if I am fairly certain I will have offsetting LT losses later this year?

[Critter-3]

No you don't if you will have an offsetting loss by the end of the year.