Question on Quarterly Estimated Tax Payments not being equal and skipping.

[gogators93]

I have a normal job that have taxes withheld from my check.  I make quarterly estimated payments on my Option Trading profits that I do throughout the year.  I have never made equal payments as I track my option profits and pay the estimated taxes based on those.  In researching my questions, I saw something that said you have to make a payment every quarter and there lies my question as I did not make an estimated payment for September as my profit for that quarter was negative.  I am also looking to tax harvest which I was not planning that will lower my taxes to a point where the first two quarterly payments more than covers what I would owe so I would not need to make a quarterly payment in January for the last quarter and I would be getting a refund for overpayment.  Does this all work out as expected or by not paying anything the last two quarters and getting a refund, will I have any issues?

Here is a theoretical example of what I am talking about.

1st quarter profit $20K, paid $5K Estimated Taxes.

2nd quarter profit of $40K paid $10K Estimated Taxes.

3rd quarter loss of $10K so didn't make any Estimated Payment

4th quarter profit of $20K but sold $50K Loss for Net Loss of 30K so didn't make any Estimated Tax

Expectation is I make a total profit of $20K and paid estimated taxes for $60K so Expect a refund of about $10K

EDIT:  One other aspect of my question is am I required to pay quarterly Estimated Taxes as I see there are penalties if I don't pay a quarter.  I have a fulltime job that my wages are taxed.  The only reason I pay quaterly taxes is because I make money in a personal brokerage account and I don't want to be penalized for underpayment as I tend to make a significant amount. 

[tagteam]

If the following safe harbor rules are applicable in your case, then you may need to make quarterly estimated tax payments. Otherwise, you do not.

• You expect to owe more than $1,000 after subtracting withholding and tax credits when filing your return, or
• You expect your withholding and tax credits to be less than:
  • 90% of your estimated tax liability for the current tax year
  • 100% of the previous year's tax liability, assuming it covers all 12 months of the calendar year*

*The 100% requirement increases to 110% if your adjusted gross income exceeds $150,000 ($75,000, if you're married and file separately).

[Mike9241]

the default method for computing underpayment penalties is to assume 1/4 of your annual tax is due each period. For the full year, your annual tax payments due is the lower of either 90% of your current year tax or 100% (110% if 2022 tax if that year's adjusted gross income was over $150K) but as stated 1/4 must be paid in for each period. Therefore, it is possible that under the default method, you could be subject to penalties. The only way around this is to calculate your taxes for each period using the annualized income installment method (AIIM) on page 3 of the 2210. 

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under the AIIM  taxes are computed by annualizing income net of deductible expenses for each period, computing the taxes thereon, and then de-annualizing the tax. tax payments for each period must equal or exceed the calculated tax. 

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if there are penalties and you never requested a waiver in other years you could request a waiver. This is a one-time thing. 

[gogators93]

Thank you for that response.  I am expecting to have overpaid this year and to get a refund so my major concern is will I have any issues by only paying estimated taxes on two occasions instead of all four after reading that you are required to pay each time.  I'm thinking not if I am getting a refund based on last year.

Last year I only paid estimated taxed three of the four quarters.  I still owed at the end of the year about and had a penalty of like $50.  I never saw anything about not paying one of the quarters or any mention that I failed to do so.  Just filled out my taxes like normal and I owed with the small penalty.

More concerned with how to handle this for next year and whether I need to change how I do things.  I have been paying estimated taxes on Options since 2017 and while until last year I always paid every quarter, the amounts were never close to being the same and if that is ok going forward.

[fanfare]

you have until Jan 15 to figure it out.

Schedule AI is available to handle your situation but it is confusing. It can reduce or eliminate your penalty.

You can reduce penalty for a missed quarter by making a larger Estimated payment at the end.

@gogators93 

[gogators93]

Thanks Fanfare.  I have since been reading up on the Annualized Income Installment Method which I had never heard of before that is starting to make sense.  When I fill out each quarter and do the math, it aligns with what I paid in each quarter because I based the payment on the money I earned during that quarter.  As in my examples, my third quarter earnings was negative because I lost money that quarter so I did not make an estimated payment.  I tax harvested and had a negative 4th quarter so was not planning on making a payment this quarter as what I paid in the first two quarters overpaid my final AI total by about $5K.  This makes sense now but just not sure if it was a problem to not make any payment for the 3rd and 4th quarter.