Can I delay capital gains tax? Safe harbor

[hdurina84]

I'm a w2 employee.
recently got some significant long term capital gains in June end.
I know that I have to pay 20 % estimated tax for the capital gains by end of 3rd quarter.

However. I'd rather keep the capital gains money in tbills or HYSA and earn interest.

Can I just pay 110% of the tax liability for 2021 tax year in 2022, to delay paying estimated taxes till April 2023 on the capital gains money

Can this 110% tax liability be paid in monthly installments this year.

Thanks

[Mike9241]

Can this 110% tax liability be paid in monthly installments this year.

yes you can.  use IRS Direct Pay but note that 25% of 110% your 2021 tax must be paid by 4/18/2022 another 25% by 6/15/22 then 9/15/22 and finally 1/17/2023

with your income so uneven and especially since you probably haven't paid in through withholding and estimated taxes 55% (1/2 of the 110%) of your 2021 tax by 6/15/2022 you may be subject to penalties for underestimation for the 1st two quarters.

when you do your 2022 return you can use the annualized income installment method to figure if you have a penalty. 

you can use the 2021 form 2210 pages 3 and 4 to figure what needs to be paid now or by 9/15

https://www.irs.gov/pub/irs-pdf/f2210.pdf 

here are the rules to avoid an underpayment penalty.

There will be no federal penalties in 2022 for not paying in enough taxes for the year if withholding

• And timely estimated tax payments equal or exceed 90% of your 2022 tax

or

• 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

• the balance due after subtracting taxes withheld from 90% of your 2022 tax is less than $1,000

or

• your total taxes are less than $1,000

state laws differ

[Critter-3]

In lieu of estimates you can arrange to have extra withheld from your paycheck anytime until the end of the year. 

[hdurina84]

Thanks! 

Pls correct me if I'm wrong, if you can. I know you cant offer specific tax advice.

total tax for year 2021 is 127735

110% of that is 140508.5

So far till july 2022 between wife and me , federal withheld amount is 79523

My wife wont be working rest of year.

So I will have to reach 140508.5 through a combination of my ongoing withholdings and estimated tax payments.

If I reach that, then I can just pay the remainder of estimated taxes on my capital gains when I file taxes in April 2023.

[Critter-3]

Correct on all counts except the timing of the payments.   If you choose to make an estimate you should make  the quarterly payment in full in the quarter the stock sale happened since the IRS wants the taxes paid as the income is earned.  However, any withholdings done thru the payroll system are considered paid evenly thruout the year even if all the payments are done on the last paycheck of the year.  But if your spouse is no longer working AND  the sale is considered long term then you may only need to pay 90% of the 2022 income tax if it will be less than 2021 ...  so do some estimated payment calculations to decide the amount you need to make in advance to avoid an underpayment penalty.   

Of course, you can wait to you file  to  pay the tax +  penalty when you file your return if you want to keep the money until then and keep it "working" for you.  The underpayment penalty is currently at 4% so if you can make a better rate of return then go for it. 

The following is the general rule:

You must pay estimated tax for 2022 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2022 after subtracting your withholding and tax credits.
2. You expect your withholding and tax credits to be less than the smaller of: 
   1. 90% of the tax to be shown on your 2022 tax return, or
   2. 100% of the tax shown on your 2021 tax return. Your 2021 tax return must cover all 12 months.

Note: If your AGI for 2021 was more than $150,000 ($75,000 if your filing status for 2022 is married filing a separate return), substitute 110% for 100% in (2b)

[Hal_Al]

Deleted

[hdurina84]

Thank you all!