Solved: We will have a pretty significant capital gain from a sale of stock (long term). Do I have to prepay tax to ensure we meet the 90% minimum tax withholding obligation?
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We will have a pretty significant capital gain from a sale of stock (long term). Do I have to prepay tax to ensure we meet the 90% minimum tax withholding obligation?

 
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We will have a pretty significant capital gain from a sale of stock (long term). Do I have to prepay tax to ensure we meet the 90% minimum tax withholding obligation?

No. Paying estimates is essentially optional.
You should make an  estimated tax payment 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 tax return. (Your prior year tax return must cover all 12 months.)


TurboTax (TT) can prepare the payment vouchers. In your 2016 software, enter at:

Federal Taxes or Personal (H&B version)

Other Tax Situations

Other Tax Forms

Form W-4 and Estimated Taxes - Click the Start or Update button

 

If your goal is just to avoid the underpayment penalty, then paying 100% of the prior year tax liability is the “safe haven”


Or you can obtain  blank IRS Form 1040-ES from the IRS. The form and instructions are at this link:  
https://www.irs.gov/pub/irs-pdf/f1040es.pdf

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Highlighted
Level 15

We will have a pretty significant capital gain from a sale of stock (long term). Do I have to prepay tax to ensure we meet the 90% minimum tax withholding obligation?

No. Paying estimates is essentially optional.
You should make an  estimated tax payment 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 tax return. (Your prior year tax return must cover all 12 months.)


TurboTax (TT) can prepare the payment vouchers. In your 2016 software, enter at:

Federal Taxes or Personal (H&B version)

Other Tax Situations

Other Tax Forms

Form W-4 and Estimated Taxes - Click the Start or Update button

 

If your goal is just to avoid the underpayment penalty, then paying 100% of the prior year tax liability is the “safe haven”


Or you can obtain  blank IRS Form 1040-ES from the IRS. The form and instructions are at this link:  
https://www.irs.gov/pub/irs-pdf/f1040es.pdf

View solution in original post

Highlighted
Level 15

We will have a pretty significant capital gain from a sale of stock (long term). Do I have to prepay tax to ensure we meet the 90% minimum tax withholding obligation?

Do you need to pay estimated taxes?

That depends on your situation. The rule is that you must pay your taxes as you go.

If at filing time, you have not paid enough income taxes through withholding or quarterly estimated payments, you may have to pay a penalty for underpayment.

To determine whether you need to make quarterly estimates, answer these questions:

  1. Do you expect to owe less than $1,000 in taxes for the tax year after subtracting your federal income tax withholding from the total amount of tax you expect to owe this year? If so, you're safe—you don't need to make estimated tax payments.
  2. Do you expect your federal income tax withholding (plus any estimated taxes paid on time) to amount to at least 90 percent of the tax that you will owe for this tax year? If so, then you're in the clear, and you don't need to make estimated tax payments.
  3. Do you expect that your income tax withholding will be at least 100 percent of the tax on your previous year's return? Or, if your adjusted gross income (Form 1040, line 37) on your tax return was over $150,000 ($75,000 if you're married and file separately), do you expect that your income tax withholding will be at least 110 percent of the tax you owed in tax for the previous year? If so, then you're not required to make estimated tax payments.

If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements we just covered.

https://ttlc.intuit.com/questions/1901110-do-i-need-to-make-estimated-tax-payments-to-the-irs

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