Estimated Quarterly Payments

[MAJ]

I am trying to figure out how much to send in for my quarterly payments for the 2025 tax year.  I expect everything to be the same as my 2024 taxes except that I will have $185,000 of long-term capital gains for 2025.  I did an  experiment with my 2024 file (Turbo Tax desk top file) and TT came up with about $37,000 for federal taxes.  But it printed out the four vouchers for quarterly estimated payments with total up to about $41,000.  So, the question is which number to go with for my quarterly payments, the $37,000 or $41,000?  Why is it different?

[Mike9241]

there are 2 general rules to avoid penalties for not making timely payments towards your 2025 tax by having sufficient withholding and making timely estimated tax payments

1. they must equal 100% of your 2024 tax. 110% if your 2024 adjusted gross income was $150K or more OR

2. they must equal 90% of your 2025 tax. 

we can't see what Turbotax did 

the first rule, if met, always works regardless of actual taxes for the next year. however, in your situation with a large capital gain, you would end up owing a significant balance come 4/15/2026. 

[baldietax]

when you say TT printed out vouchers for 41k was that generated when you did your actual 2024 return, or when you did the experiment return for your 2025 numbers?

when you did your actual 2024 return, by default TT will use the "100% of 2024 tax" (110% if AGI > 150k) and assumes your 2025 withholding is the same as 2024 (so if using those amounts check the withholding assumptions if applicable).  You can also then go thru "Other Tax Situations / Form W4 and Estimated Taxes" and give it 2025 estimates, in case 90% of 2025 tax is lower.

If you are looking at ES vouchers from your experimenting including the 2025 cap gain entered as tho it was 2024, it's generating vouchers for 2025 probably based on 110% of the experimental tax which was entered as tho it was 2024, as presumably your AGI will be > 150k in this case.  That's probably why the vouchers say 41k but the tax is 37k.  The tax from your experiment is a good benchmark for your final return (bear in mind some deduction limits or tax tables will be different for 2025), but ignore ES vouchers generated by that experiment.

In your situation if you expect a significant income event in 2025, you can pay ES based on 100/110% of your 2024 tax which should be significantly lower (and check withholding in that calculation).  You will owe the balance in April 2026, but you can earn 4% interest in the meantime.  It also won't matter how much the 2025 income is or when it occurs, as long as you are paying ES quarterly based on 2024 you are protected.

If you didn't make Q1 ES or underpaid, make sure to catch it up in Q2 by paying 50% of the total ES by Q2.  You will still have a penalty for Q1 but it will stop the penalty accruing for more than a few months.

[baldietax]

P.S. when you file 2025 next year you are going to see those same high vouchers by default TT will generate ES for 2026 for 110% of your 2025 tax.  When that happens you can go thru Other Tax Situations / Form W4 and Estimated Taxes to provide 2026 information and reset the ES calculations back to the lower "90% of 2026 tax".  Ultimately you can also just ignore ES vouchers from TT (and vouchers in general, pay electronically at irs.gov) if you have better offline estimate.

In desktop in Forms mode there is a form "Est Tax Options" which shows the details.  Also in Forms mode you can double click on Form 1040 line 38 penalty and double click again in the worksheet to show the Form 2210 penalty calcs, so you can also experiment with different ES payments to confirm how the penalty is calculated.