Income Coming In at Different Times of the Year

[freddytax]

For 2024 I had a large capital gain in January.  Then at the end of the year I bought a home and generated quite a bit of income through the sale of stocks, funds and CDs.  So then I had all this income at the end of the year.  I did make a quarterly tax payment in Q1 but none in Q2-Q4.  And I got dinged for for an estimated tax penalty in TT for $3,000.

So question is does the IRS give you a break if your income is sporadic during the year like my example above?  The home purchase was not known until December and the income I needed to purchase it.

[Bsch4477]

The IRS’s position would be for you to make an estimated payments in the quarter that you had unexpected income to cover your anticipated tax liability. 

[rjs · Accepted solution]

When a large portion of your income was at the end of the year you can get a break on the estimated tax penalty by using the annualized income method to calculate the penalty. It takes into account that the income occurred at the end of the year, so you were not required to make estimated tax payments earlier in the year. When you go through the "Underpayment penalties" topic in TurboTax it will ask you if you want to use the annualized income method.

[freddytax]

Thank you!!

[freddytax]

Thank you.  I forgot about the annualized method - I have used it before.  I actually had a large capital gain at the beginning of the year, interest and dividends throughout the year, and then several large capital gains at the end of the year.  So bottom line the method didn't help me.  I did figure that the penalty came to 4.1% which I'm making in an HYSA.  I do have to pay taxes on the interest I'm earning but I'm probably nickel and diming it here.