I’ve paid estimated taxes the last few years, mainly to avoid larger tax bills come tax time, but also to help counter significant stock market gains. Our typical annual income is $400k+, but I expect it will be closer to $300k for 2020. My employer pays taxes for me in addition to extra with holdings I ask for at the state and federal level.
Question: Can I stop paying estimated taxes without facing a penalty?
@hughbarrett2006 wrote:Question: Can I stop paying estimated taxes without facing a penalty?
You can avoid the underpayment of estimated tax penalty if:
1) You owe less than $1,000 in tax, after subtracting any withholding and refundable credits, OR
2) You paid withholding and estimated tax of at least 90% of the tax for the current year or 100% (this can increase to 110% based on adjusted gross income) of the tax shown on your return for the prior year, whichever is smaller.
Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
This is for federal taxes. If you are asking about state, I don't know the answer.
@hughbarrett2006 wrote:Question: Can I stop paying estimated taxes without facing a penalty?
You can avoid the underpayment of estimated tax penalty if:
1) You owe less than $1,000 in tax, after subtracting any withholding and refundable credits, OR
2) You paid withholding and estimated tax of at least 90% of the tax for the current year or 100% (this can increase to 110% based on adjusted gross income) of the tax shown on your return for the prior year, whichever is smaller.
for them since their 2019 adjusted gross income was over $150,000 as one of the options they would need to pay in 110% of their 2019 taxes not 100%
it is also entirely possible that with $300,000 in short-term capital gains for 2020 they could end up owing more than if they had $400,000 in long-term capital gains for the same year.
within the TT program for 2019, there should be a section where they can enter their estimated 2020 amounts to get a better idea of where they stand. some taxpayers like to owe as much as possible without penalties, others prefer to break even and there are those who want to get a huge refund - that's how they save for a vacation or large purchase - let the IRS hold their money interest free.