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Unanticipated capital gains

I have a question on unexpected capital gains for 2022 tax year.  My wife and I are both unemployed.  We took some money out of our IRA's this year with a withholding rate of 20%.  We do not make estimated tax payments since I assumed the withholding would be sufficient.  In July of this year, a company that I had stock in went private.  They paid out all of my shares in cash but did not withhold any tax.  I have a sizeable capital gain as a result.  I am trying to figure out how I determine if I need to make some type of estimated payment now to avoid any tax penalty.   Any suggestions?

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3 Replies

Unanticipated capital gains

Try using the TaxCaster.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

 

Your IRA withdrawals will be subject to regular income tax plus a 10% penalty if you are under age 59-1/2.  Your cash buyout is probably a short or long term capital gain (depending if you held the shares more or less than one year).

 

Assuming it is a long term gain, and your total income is less than about $105,000, I think the long-term gain is tax-free.  Otherwise, the gain will be taxed at 15%.  

 

Without knowing your ages or the dollar amounts involved, your overall Federal tax could be anything from zero to 35% of the IRAs and 15% of the stocks.  If you plug your numbers into the TaxCaster, you should get a close estimate. 

 

Don't forget your state income tax.  Most states tax capital gains as ordinary income and don't have a reduced rate.  State tax rates can be between 3%-13%, depending on your income and which state you live in. 

Unanticipated capital gains

@ITExec - here is another calculator that may help as well: (scroll down to where the capital gains calculator is); it's the 2021 calculator, but it will be 'close enough'

 

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates

 

here is the 2022 capital gains bracket; you would take your IRA distribution less your standard deduction ($25,100 if you are both under 65 years old) and THAT will determine whether the capital gain begins in the 0% tax bracket and then bleeds into the 15% tax bracket

 

                                                  0% tax rate               15% tax rate                 20% tax rate

Single

$0 to $41,675.

$41,676 to $459,750.

$459,751 or more.

Married, filing jointly

$0 to $83,350.

$83,351 to $517,200.

$517,201 or more.

Married, filing separately

$0 to $41,675.

$41,676 to $258,600.

$258,601 or more.

Head of household

$0 to $55,800.

$55,801 to $488,500.

$488,501 or more.

 

 

Unanticipated capital gains

if it's purely a question of not incurring penalties even if you owe a lot come 4/15/2023 then these are the rules:

There will be no federal penalties for not paying in enough taxes during the year if withholding (including amount withheld from the IRA distributions) 
1) and timely estimated tax payments are equal to or exceed 90% of your 2022 tax
or
2) and timely estimated tax payments are equal to or exceed 100% of your 2021 tax (110% if your 2021 adjusted gross income was more than $150K)
or
3) the balance due after subtracting taxes withheld from 90% of your 2022 tax is less than $1,000

state laws differ if your state has an income tax. 

 

 

 

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