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Estimated Taxes for Q1 for capital gain

I am deciding if I need to pay estimated taxes on 4/15 for Q1 since I have sold a large sum of investment resulted in capital gain.
Reading from IRS website 
Generally, you must make estimated tax payments for the current tax year if both of the following apply:
1. You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits, and
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your current year's tax return, or
b. 100% of the tax shown on your prior year’s tax return. (Your prior year’s tax return must cover all 12 months.)    
The second point is a bit confusing. First of all, what does "withholding and refundable credits" mean? does it mean total withholding subtract refundable credits/refund? I am employed and I expect to make much more from my job this year, so I expect the withholding will be much more for this year. I am not sure what 90% of the tax on my current tax year tax return would look like (probably more than 100% of prior year tax). But regardless, as long as my withholding from this year is more than the total tax shown in prior year return then I should not need to pay any estimated taxes is that right?

Basically the second point can be read as - "as long as your withholding is greater than at least one of the following.....90% tax own from current year or 100% total tax from prior year"?
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1 Reply
ThomasM125
Expert Alumni

Estimated Taxes for Q1 for capital gain

You would have refundable credits when your credits reduce your tax to $0 but you still get the rest of the credit as a refund. For instance, if your tax before application of an earned income credit of $2,000 was $1,000, you would get a refund of the rest of the credit of $1,000. Most credits aren't refundable, you can use them to reduce your tax to $0, but you can't use the rest of the credit to get a refund. A refundable credit is one where you get the rest of the credit as a refund even after your tax is reduced to $0.

 

Your withholdings are income taxes you have withheld from income you receive, such as wages, pension distributions, social security benefits, etc... You would add that to the refundable amount of credits (refund associated with refundable credits) to determine how much tax you will pay in during the year.

 

On the second point you are correct, if you pay in 100% of the amount of your income tax from the previous year on a timely basis this year, you will not be penalized for late payment of tax even if you owe more than $1,000 when you file your tax return. The percentage is increased to 110% if your income is over $150,000.

 

Your other option is to estimate what your tax will be in the current year and pay in 90% of that on a timely basis. 

 

 

 

  

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