Capital Gains and income

[allenmankind]

In December 2021, received $1.572 million in deposits from sale of stock of a business I owned long-term.   2020  net income <$35k, and expect similar income (aside from the $1.572M) in 2021.   Prepaid $70k fed and $12k IL estimated tax to try to avoid underpayment penalties.  How much should I expect to pay in capital gains in 2021, federal and state (IL income tax rate is 4.95%), and how far off is my estimate fed and state capital gains estimate?  Also, do you recommend your option for a TT pro to prepare this return, or an outside pro?  Always did it myself before.

I currently receive $1.8k social security/month.  Would that change as a result of cash I received?

[RobertB4444]

The 1.572 million is the gross amount that you received.  The net amount will be that gross amount minus the amount that you paid for the stock.  That net amount is the amount that you will owe between 10 and 15% on for your federal return and 5% on for your Illinois return.

Since this is a one-off you should go ahead and do the return yourself just like you always do.  Once you've finished - if you don't feel confident in the results - you can always have a professional review it before you submit it or re-do the return.

You may get a letter from the social security administration about your benefits.  After all, they don't know it's a one time thing.  You may have to submit something in writing to them.  Watch your mail for a letter.

[allenmankind]

Since I paid $0 for the stock, 15% to feds ($236k) and 5% (same % as IL income tax, not a different amount for capital gains?) ($78k) to Illinois?

Does the $70k quarterly estimated federal tax and $12k quarterly estimated IL tax prepayment for 4th quarter 2021 sound correct enough to you to avoid underpayment penalties?

[DianeW777]

You will see what is required to eliminate the underpayment penalty.  I assume that your payments in estimated tax equal or exceed the limits below based on your 2020 Total Tax (look for this line on your 2020 1040, page 2).  For you this will be 110% of total tax for 2020.

Who Must Pay the Underpayment Penalty

In general, you may owe the penalty for 2021 if the total of your withholding and timely estimated tax payments didn't equal at least the smaller of:

1. 90% of your 2021 tax, or

2. 100% of your 2020 tax. Your 2020 tax return must cover a 12-month period.

NOTE: Higher income taxpayers.

If your adjusted gross income (AGI) for 2020 was more than $150,000 ($75,000 if your 2020 filing status was married filing separately), substitute 110% for 100% in (2) above.

• Instructions for Form 2210