Am I stuck paying estimated tax penalty and interest if I take a capital gain on a stock sale late in the year but not pre-paying for that in the first 3 quarters?

[gbacapital]

Seems like the penalty is unavoidable in this instance. Is there a way to pay 100% of tax due on each quarter's income, have a lump in December, and still avoid the penalty?

[baldietax · Accepted solution]

Not stuck but you should be able to significantly reduce it if you go through the Annualized Income (AI) Method under "Other Tax Situations" > Underpayment Penalties which will allow you to specify the uneven AGI thru the year by quarter (3/31, 5/31, 8/31) to line up with the estimated tax payments.  If you have other mismatched AGI vs. payments/withholding earlier in the year that were otherwise to your benefit, the AI method may penalize you a bit for those but overall you should be able to significantly reduce the penalty from the Q4 event.

Recommend checking the resulting worksheets/forms for Form 2210 which get generated either via Forms mode or PDF with "all forms and worksheets" to see the details of this process and any residual penalty.

Same method is used for ROTH conversions later in the year to convey a large unplanned taxable event.

[gbacapital]

Many thanks.  There is still a penalty to be paid, is what I'm reading, but reduced.  Looked up IRS form for quarterlies, and your advice is correct.  Appreciate the tutorial.