Can I make unequal estimated tax payments when income in totally unpredictable each quarter?

[Aquarius5]

We have several sources of non-W2 income:

• My spouse is self employed with a somewhat unpredictable income stream
• We receive large erratic dividends + capital gains from several investments
• We actively sell stocks and bonds resulting in capital gains (and occasionally losses)

For the above items, unless I'm misunderstanding the rules, the IRS seems to want us to pay 4 equal estimated tax payments even if we have no idea what the aggregate of these will be at the end of the year? All we can do is take a snapshot at the end of each quarter and write an estimated tax payment for that particular quarter which may vary wildly from the previous quarter.  But, like I said, I do not know if un-equal estimated tax payments are penalized even if using the above strategy makes complete sense for our situation. When I have tried to do this strategy in the past, I seem to end up with a small penalty simply for making un-equal payments (even though we actually overpaid our taxes and were receiving a refund!).

What should we do in this case?

Note that electing to do safe harbor as a workaround is not an option for us this year because we had a one-time very large income last year, so if we used safe harbor we would be extremely overpaying on estimated taxes which we don't want to do.

[JohnH1]

YES, and you can make therm monthly rather than quarterly if you want but I would do them equal and make adjustments as you see that you are making more than you did the previous year so you dont own too much at the end of the year.

[VolvoGirl]

Yes you should make unequal estimates.  You can adjust them during the year.  Also,  FYI- please make payments in whole dollars, no cents.  People who paid exact amounts had trouble entering them on their tax return due to rounding.  

Are you using the Online version or the Desktop installed program?  You can do a lot of planning and tweaking in the Desktop program.   You can pick different amounts or leave the amounts off to write in your own.  

[orchid9]

I have never paid 4 equal payments for estimated taxes.   You would have to recalculate for each quarter and take into account what you already paid for the previous quarter(s).   Never received a penalty for not paying enough in that particular quarter.   Only at the end of year when you do your annual tax return if you did not pay enough estimated taxes.

[fanfare]

 you must estimate your total tax for the year.,
you can base your estimate on prior year's tax , or 90% of this year's tax, whichever is smaller.
each period, your estimated tax paid and withheld must be at least 25% of the estimate, even if your income is uneven, payments above 25% are carried into the next period.
if your estimate is based on this year's tax and turns out to be wrong you may be penalized.
you can compensate by overestimating.
if your estimate is based on prior year's tax, you know that when you file by April 15, which is also the first estimated tax payment due date. How convenient.

@orchid9 

[Aquarius5]

each period, your estimated tax paid and withheld must be at least 25% of the estimate, even if your income is uneven,

---

So for example if 90% of taxes owed is $40,000, I would not be penalized making the following unequal payments?

1. Q1 - $11,000
2. Q2 - $11,543
3. Q3 - $10,765
4. Q4 - $10,000

Total: $43,308

But alternatively if I made the following unequal payments it would trigger a penalty because there is a payment less than $10,000 (25% of $40,000)?

1. Q1 - $11,000
2. Q2 - $9,900
3. Q3 - $15,000
4. Q4 - $10,000

Total: $45,900

Even though I paid more taxes in the second scenario than the first.

[fanfare]

change Q2 to $8,900

for a total payment of $44,900

Your estimated tax penalty is One Dollar.

@Aquarius5 

[Makaio]

So here's a scenario question to see if I understand this all correctly: 

-If I have no tax situations requiring estimated taxes Q1-Q3, and have a normal W-2 job making about $100k/yr that's been steady for years, but I come into an unexpected large investment income of say $1,000,000 during Q4.  If I estimate 40% tax rate (Short term capital gains, + NIIT), that'd be an extra $400,000 in taxes.

-I pay the $400,000 in estimated taxes in Q4.

-Does this mean that no matter what I'll still be penalized for not paying $100,000 in each of Q1-Q3, even if I didn't have any money to do so until Q4?

[SusanY1]

No, there would not be a penalty in your case but there would be a few extra steps to take in order to indicate that the income was not earned equally throughout the year.  This is something TurboTax can walk you through, though.

@Makaio 

[MeNombreEsEarle]

So in the example, $40K is the magic number (anticipated tax due for year), and where Q1 is $11K, then Q2 could be as low as $9K, since (apparently) the overage from Q1 applies to lower the penalty threshold in Q2, so long as the cumulative of Q1 & Q2 add up to 50% etc.
OK, so that kinda fits my own situation, I had a busy (well compensated) 2024, so I based Q1 on that TY24 tax, regardless of a slow Q1, I was confident that by Q2 I would be back gainfully employed and just keep with the 25% flow.  However, now we are five months in and my income is shaping up to be less than half of last years, if things don't pickup.  I'll still be down in any case, and my Q1 is more than enough to be over 50% of the years total obligation.  I feel like I ought send just a token, like $100, just to have something to point to, with the explanation as shown above.
Now, never mind that Q2 is a cheat, since it only has 8 weeks and five days rather than the 13 weeks a full quarter would have.  The math is

   Q1: Jan15-Apr15 = 90 days;

   Q2: Apr16-Jun15=60 days;

   Q3: Jun16-Sep15=91 days;

   Q4 : Sep16-Jan15=122 days. 

So while Q1 and Q3 would properly be 25%, Q2 should be 17% (rounded) while Q4 should be the remaining 33%. If one's income is constant through the year, that's how it would prorate. A traditional W2 employee has an equal amount deducted from each regular paycheck, not disproportionately more in Q2.  Just my $0.02.

[baldietax]

@MeNombreEsEarle ignore the smaller Q2 month, the estimated tax and penalty calculations treat each quarter equally and divide everything (total tax, withholding etc) by 4 regardless of when it was earned.  If you adopt the AI method due to a large income event then it gets more precise and you have to specify income by 3/31, 5/31, 8/31, 12/31.

In your case it sounds like you paid Q1 ES based on prior year tax which will be an overpayment on ES given your updated 2025 situation based on 90% of 2025 tax less withholding, sounds like you've done that calculation.  If your Q1 payment was above that quarterly amount it will carry forward to the next quarters and you need to pay in Q2 whatever amount gets you to 50% of the total ES, 75% by Q3, 100% by Q4.   If Q1 covered more than 50% I don't think you need to pay anything for Q2 ES, it won't make any difference.