Estimated tax on sale of home needed to make?

[Kiki]

I sold my primary house in June, 13, 2022. that lived for 12 years.  My net capital gain after subtract Cost basis + expenses + 250,000 (I'm single) is about $85,000.  I was told by CPA ( Not my CPA ) that Dead line to pay tax is April, 18, 2023, and I don't need to make estimated tax particularly on house sale .   I filed extension in April, 10 and paid tax at the same time that was enough to cover my tax liability for 2022.  Now, Turbo Tax says my underpayment penalties is $580.  

Some articles on website (by tax lawyer or CPA), says:  For HOUSE SALE capital gain tax Due is April, 18, and no necessary to make estimated tax.   I am so confused and shocked now.

Anyone can help me to understand with using clear and simple words?     I am in California.

Thank you very much for your time and help in advance.

[Mike9241]

for federal income tax purposes to avoid an estimated tax penalty

a) by 4/15/2022 you had to pay in 22.5% of your 2022 tax liability or 25% of your 2021 tax liability (27.5% if your AGI for 2021 was over $150K

b) by 6/15/2022 you had to pat in 45% of your 2022 tax liability or 50% of your 2021tax liability (55% if your AGI for 2021 was over $150K

c) by 9/15/2022 you had to pay in 67.5% of your 2022 tax liability or 75% of your 2021 tax liability (82.5% if your AGI for 2021 was over $150K 

d) by 1/15/2023 you had to pay in 90% of your 2022 tax liability or 100% of your 2021 tax liability 110% if your AGI for 2021 was over $150K

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same 90/100/110% rules for Californians

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put another way

There will be no federal penalties for not paying in enough taxes during the year if withholding
1) and timely estimated tax payments equal or exceed 90% of your 2022 tax or
2) and timely estimated tax payments equal or exceed 100% of your 2021 tax (110% if your 2021 adjusted gross income was more than $150K) or
3) the balance due after subtracting taxes withheld from 90% of your 2022 tax is less than $1,000 or


the lower of 1 or 2 is your required annual income tax payments. 1 is difficult to know until the year end so generally option 2 is the safer option. under the simplified method 25% of the estimate taxes must be paid in each quarter by 4/15, 6/15, 9/15 and 1/15/23. unless you can show otherwise 25% of you annual withholding is assumed to occur in each quarter.

failing this and being subject to penalties you can use the annualized installment (AI method) income method.
this method requires knowing your income and deductions thru 3/31, then 5/31, then 8/31, and finally year end which should be the same as the tax return. the income is annualized. taxes are computed on the annualized income and then de- annualized. your tax payments for each period must equal or exceed these amounts to avoid penalties.

the AI method probably won't help because the taxable portion of the gain occurred early in the year.

[NCperson]

@Kiki basically, the IRS expects you to pay any tax due quarterly.  there are some rules that mitigate that, but that is the general rule.  

if your tax payments and withholdings are at least the same as the prior year's liability or at least 90% of the current year liability, you are in the clear.  

but I suspect that is not the case here.  The tax on $85,0000 was about $12,750 and since the sale occured in June, broadly speaking, the IRS wou;d have wanted its money by Sept, 15. 

It's somewhat arduous, but try going back and completing Form 2210 and check Box C.  then complete the rest of the form as it will probably reduce the penalty.

The IRS otherwise assumes everything was smooth over 4 quarters of the year when it calculated the penalty.  In this case you didn't owe the estimated payment on April 15, 2022 or Junr 15, 2022, so the penalty has probably been overstated. 

does that help? 

[Opus 17]

You sold your home in 2022 (last year) or 2023 (this year)?

Assuming 2023, then your estimated payment to cover your lump sum of income was due Sept 15, 2023.  You can make a payment at www.irs.gov/payments.  Select "2023 estimated taxes" or "2023 from 1040-ES" as the reason from the menu.  If you overpay the estimated taxes, the excess will come back to you as part of your refund.

Estimated taxes are always required by law.  However, there are some circumstances where you might not be assessed a penalty for skipping the payment, such as if the tax you owe at the end of the year is less than $1000 (because of withholding or other factors).   If the IRS does assess a penalty, paying as soon as you can (since it is past the due date) will minimize the amount of penalty and interest that will be added.

Lastly, the IRS assumes that all income is earned evenly over the year and that taxes should be paid evenly over the year.  That means that by default, the IRS may assume that you owed 1/4 of the estimated payment in April, June, September and January, even though you only got the income in June.  To avoid this problem when you prepare your tax return next spring, you can use Turbotax to figure your penalty using the "annualized income method".  With this method, you split out your income and payments (withholding and other payments) by quarter and show the IRS that you paid the lump sum estimated taxes close to the correct date for the lump sum of income.   (Remember that even though you are past the Sept 15 deadline, paying as soon as you can will minimize any possible additional interest or penalties for late payment.)

[fanfare]

In simple words, even if you paid your tax with a request for extension of time to file,

you can still be hit with a penalty for not paying the expected Estimated Tax payments.

Use the option C on Form 2210 to reduce or possibly eliminate your penalty with the annualized method.

@Kiki 

[Kiki]

Thank all of you very much for your responses and sharing your knowledge.

I tried to take Annualized Methods that helps me a lot to reduce my penalty, but it's too complicated at the end for me. 

Instead, I've decided to take Actual Withholding Form2210,Part II D:elect to treat the tax withheld as paid when it was actually withheld

Turbo Tax asks : 2021 Tax Liability for 2210 purposes ,   It says Enter the amount from your 2021 Form 2210, line 4 or Form 2210-F, line 6

But I didn't file 2210 for 2021 tax.

Then, TT explains:

""Your 2021 tax liability for Form 2210 purposes can be found on your 2021 Form 2210, line 4 or Form 2210-F, line 6, if you happen to have one of them in your 2021 tax return. This amount is used on your 2022 Form 2210, line 8 or Form 2210-F, line 10, and can reduce or eliminate a penalty for underpaying your taxes.

If you do not have a 2021 Form 2210 or Form 2210-F then you will need to see the instructions for Form 2210 line 8. Remember you can always let the IRS calculate the penalty for you so you don't have to do this.""

I am just so confused what this means.  

Assuming that a form 2210 was needed, create a form 2210 for 2021 now myself, and find the amount line 4 to enter for 2022 form 2210 line 8?   

Or I just follow the instruction 2022 form 2210, line 8 ?

The due is just around corner, Please help!

Thank you so much.

[fanfare]

you get your 2021 Tax from 2021 Form 1040.

The amount to enter on 2022 Form 2210 Line 8  is 100% of that amount (110% if your 2021 AGI was over $150,000) .

If you satisfy the condition of Line 9 using Line 8 then for this purpose it won't matter that you sold a home in 2022.

@Kiki 

[fanfare]

Since you sold a home in 2022, I'm guessing that Line 8 will be less than Line 5. i.e. the smaller.

@Kiki 

[Kiki]

Thank you very much, fanfare.

I am sorry but please let me clarify

So, I just simply enter my Total tax from 2021 form 1040 in a box TT asking "2021 Tax Liability" correct?

2021 Tax Liability is 2021 form 1040 line 24 ( line 22 + schedule 2 )?    

And this is the amount will be in form 2210 (2022) line 8 ?

Am I understand correctly ?

I apologize to ask many times. I somehow screwed up with this section!

Thanks a lot!

[NCperson]

@Kiki yes, Line 24 is your 'total tax liability'

https://www.irs.gov/pub/irs-prior/f1040--2021.pdf

[Kiki]

Thank you so much!  I can finish my tax 2022 finally!   greatly appreciate all of you who helped me!