Estimated Taxes and 2210 incorrectly suggested for short term capital gains

[Bwill3]

Hello,

Has anyone experienced this?  TurboTax is saying I should make estimated tax payments in 2023 and in 2022 included a 2210 where I requested the penalty be waived.  I had short term capital gains which made up all of my taxable income.  The rest was SSI and untaxed.  It said I owed an underpayment penalty for state too.  The tax due was over $1,000 and the short term capital gains happened in Q4 2022.  Why would anyone need to make estimated taxes for short term capital gains?  You don't know when they'll be realized or if you'll end the year net positive or negative.  It seems overly conservative by TurboTax to assume this income was regular and should be taxed throughout the year when it knows it came from short term capital gains only.

[MinhT1]

If you believe that you would not have capital gains in 2023 and that all your income is SSI, then you can safely discard the 1040-ES vouchers proposed by TurboTax.

Estimated tax payments are not compulsory and the vouchers are based on your 2022 income.

[Bwill3]

Thanks for the reply MinhT1.  If I had 20K in short term capital gains in 2022 and I have 40K in 2023, I will not have to make estimated tax payments for the short term capital gain income in 2023-even if by chance I make 10K in Q1, 10K in Q2, 10K in Q3, and 10K in Q4, it just isn't required for short term capital gains, right? 

Also, is the IRS likely to now ask why I didn't make estimated tax payments because turbotax filed a 2210 asking for a waiver which I will then have to explain the tax owed was from short term capital gains in Q4?

[ThomasM125]

I don't know of any IRS rule that states you don't have to make timely estimated tax payments because your income is from capital gains, short or long-term. You can read about estimated taxes by using this link to an IRS article:  Estimated Taxes - IRS

You need to pay in estimated tax based on the income earned by quarter, or based on the tax you had from the previous year. It is true if you have losses in a quarter, that may reduce your tax so you may have overpaid the estimated tax in a previous quarter. However, if you don't have any losses you can end up deficient in the amount and timely payment of your estimated tax if you don't make your estimated payments for the earlier quarters because you assume you will have losses in later quarters. 

For your last question, I believe you want to know if the IRS will question you not making estimated tax payments in 2022 since you asked for a waiver from the penalty for late payment of tax in the previous year. That may very well be a concern. I don't know if the IRS would ask you why you didn't make estimated payments in 2022, but they would likely assess penalties if you were deficent in making the required estimated tax payments. If you mean will they question you not making estimated tax payments in 2021, again, they wouldn't ask you that, they would just deny your request to have the penalty removed if they didn't approve of your request. They will likely wonder why you didn't make estimated payments in 2021, since it appears that your capital gain income was not exempt from that requirement.