Capital Gain First Quarter- Estimated Tax Using Safe Harbor or Estimated Tax Worksheet Method?

[Ponderosa2]

I will have a significant capital gain in the 1st qtr of 2024 that will increase my taxable income only in that quarter. How am I required to pay estimated taxes?

I have seen this topic posted previously.  Some expert responders recommend the safe harbor provision (i.e., 110% of 2023) and others advise "pay as you go" (i.e., use the IRS 2024 Estimated Tax Worksheet and guess at 2024 AGI).  Clearly the safe harbor approach offers certain advantages. What should I do to avoid a penalty?

[Mike9241]

the safe harbor works but usually only the 100%/110% option because of the uncertainty of what 90% of your 2024 taxes will be

so the general method used by pros for 2024 taxes to avoid penalties, with the OK of their clients, is the 100%/110% option based on the 2023 taxes

the default method for withholding is 1/4 is assumed to be withheld each tax period (you can use actual for all periods). Therefore after subtracting your estimated withholding for 2024  (see warning) from 100%/110% of  2023 taxes you have your estimated tax payment requirement for 2024. 1/4 must be paid each period. The 110% option must be used if your 2023 adjusted gross income exceeds 150,000.  

WARNING: if your withholding for 2024 will be less than what you used to calculate your estimated tax payments recompute your obligation and increase your estimate accordingly. 

here are the rules in full

There will be no federal penalties for failure to pay in enough taxes during the year if withholding and

1. timely estimated tax payments equal or exceed 90% of your 2023 tax or
2. timely estimated tax payments equal or exceed 100% of your 2023 tax (110% if your 2023 adjusted gross income was more than $150K) or
3. the balance due after subtracting taxes withheld from 90% of your 2024 tax is less than $1,000 or
4. your total taxes are less than $1,000.

state laws differ

[Ponderosa2]

Thank you, very helpful reply. The warning regrading changes to withholding is great advice.