I've owned this one domain name for 20 years and didn't use it for commercial purposes and sat there without any web content. This year a broker offered to buy it from me which I agreed to and realized a nice little profit. Do I report the gain as income or long-term capital gains? I was about to make a 2021 estimated tax payment to the IRS and my State but have read posts that it can be classified as a LT capital gain. If it's considered a capital gain do I wait to report it when I file my 2021 taxes?
The sale transaction completed in September. The sale proceeds exceed my total income for 2021. I’m also expecting to do a sizable Roth conversion from a rollover IRA this year. Should I still file 2021 estimated taxes for the domain sale using LT capital gains tax rates to avoid penalties from the IRS and my state tax agency?
Q. SHOULD I still file 2021 estimated taxes?
A. It's optional; depending on whether you want to pay now or later.
You usually should make estimated tax payments for the current tax 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 (2020) tax return. (110% if your income will be more than $150K) .
Even if you don't meet those rules, it's still optional But you will probably end up with an underpayment penalty.
If your goal is just to avoid the underpayment penalty, then paying 100% (110% for higher income) of the prior year tax liability is the “safe haven”
The sale proceeds exceed my total income for 2021.
Just make the estimated payment. I recommend 20% of the proceeds. It's not like you don't have the money to do so. If you overpay, then the difference will be refunded to you when you file the 2021 return.