Can I eliminate or reduce my tax penalty that was caused by paying most of my estimated taxes in December due to capital gains realized at the end of the year?

Yes.  You can do this by annualizing your income.  This will allow your income to be taxed in the quarter it was earned instead of assuming it was made equally throughout the year.  To do this select the following or type in the search box annualized income method, then click Jump To.

1. Federal
2. Other Tax Situations
3. Underpayment Penalties under Additional Tax Payments
4. Walk through until you get to the question asking if you want to annualize your income and say yes.