Paid too much estimated tax because of end-of-year loss harvesting

[trungson]

Hello,

Last years I made regular estimated taxes to match 100-110% of 2021 tax to avoid underpayment penalty. However, stock market did not do so well (I made lot of trades) and so at the end 2022, I did loss harvesting (sold at loss). Final capital gain ended up much lower than I anticipated at the beginning of the year. I'll get a significant refund (because of the prepayment) but anyone in the same boat? Any issue/auditing concern? Any good strategy going forward to avoid a huge swing from year to year?

[Hal_Al · Accepted solution]

Q. Any issue/auditing concern?

A. No. The IRS doesn't care if you overpay. Yours is a common situation, so it does not raise a red flag.

Q.  Any good strategy going forward to avoid a huge swing from year to year?

A. Not really, it's a guessing game. 

In the example you gave; once you knew you were having an income drop, it was not necessary to make the 4th quarter payment (or you could reduce the amount) once you knew your revised total (estimated) tax for the year.