Estimated taxes

[snufugal]

I am retired and I generally pay estimated taxes but that is due to selling off a block of stock once a year rather than planned/scheduled income.

This year I sold in early February.  My estimated taxes are quarterly but if it is supposed to be pay as you go shouldn't the entire estimated amount of taxes on my capital gains be paid in the first quarter?

[Critter-3]

Yes it should if you use the annualized method as opposed to the safe harbor method.

The following is the general rule:

You must pay estimated tax for 2022 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2022 after subtracting your withholding and tax credits.
2. You expect your withholding and tax credits to be less than the smaller of: 
   1. 90% of the tax to be shown on your 2022 tax return, or
   2. 100% of the tax shown on your 2021 tax return. Your 2021 tax return must cover all 12 months.

Note: If your AGI for 2021 was more than $150,000 ($75,000 if your filing status for 2021 is married filing a separate return), substitute 110% for 100% in (2b)

[snufugal]

I know I have to pay estimated taxes for 2022.  That was not my question.   I sold some stock in February and it is markedly higher than blocks of stock sold in prior years which I generally sold at the end of the year.  

The estimated amount on the estimated tax voucher is not likely to be enough should I pay the additional amount spread over the 4 payments or add what I feel the shortfall would be and add to the first quarter payment.

[Vanessa A · Accepted solution]

Since you sold the stock in February you should make the additional payment with your first quarter payment instead of spreading over the four quarters. 

Taxes are supposed to be paid in the quarter the income is earned or received. 

[snufugal]

So in prior years  almost all of my estimated taxes for the year are due to capital gains on stock sold  in the final quarter of the year, but since I sold at the beginning of the year 2022 then should I pay the entire amount in the first quarter and none in the subsequest quarters?

ie  Q1 - 15,000               or   Q1  3,000 + 3,000

     Q2 -   0                               Q2  3,000

     Q3  -  0                               Q3  3,000

     Q4  -  0                               Q3  3,000

[RaifH]

Yes, in your example, you should pay the entire $15,000 in the first quarter and 0 for the remaining three quarters. As @VanessaA said, you want to make your tax payment in the same quarter that the taxable income was received. 

[Texas Roger]

See Vanessa's answer above. You must pay the estimated tax in the quarter the income was received. 

[moleratcaptain]

Thanks Critter, I got flagged by TT to either change my W4 to immediately pay $480 (due 4/15, which is already too late to change at work) or pay the estimated taxes of $480/qtr. Beginning this year we bumped our income over the $150k by spouse/I going from a traditional 401K to Roth. We've never paid estimated taxes, and it's be nice to just increase our withholdings. My draft 2021 shows a small refund, I'd think 2022 would be very similar, under $1k owed, despite warnings from TT. 

1) I believe you IRS allows you to withhold more rather than paying quarterly estimated pmts? Withholdings are viewed as throughout the year, even if you backload the above $2k towards end of year, correct?  I don't think I've ever owed more than like a $200 in State, not sure I need to increase withholdings for State.  Given I'm too late for the 4/15/22 deadline for Q1, rather than estimated pmts., I think I'm just going to bump up withholdings by $100 per pay x about 17 pays left = $1700 (I'll probably be owed a refund). Could you please share your thoughts on this?

[Vanessa A]

Yes, if you bumped up your withholdings over the next 17 pay checks you would be fine.  Although it is a pay as you go system, when your employer withholds enough, even if it is not evenly throughout the year, there is no penalty for not paying on time.  It is reported on your W2 and considered paid throughout the year. 

[moleratcaptain]

Thank you so much Vanessa!