Does one have to pay estimated taxes for capital gains? I have a large amount of capital gains for the first quarter of 2021, do I need to pay estimated taxes on them?

[fanfare]

@rncala 

You're all wrong.

Form 2210 calculates a penalty.

There is nothing there about Interest being charged on under-withholding.

Either you owe a penalty or you don't; see line 38 on form 1040 for the result.

Interest applies when you pay your tax due after the tax due date.

[rncala]

Sorry — that’s only for my state, Maryland — thanks for clarifying — signing off for 2021.

[daled1]

Im not sure, it looks like rncla is correct, except for possibly the interest owed part.  

This is taken from the turbotax website:  

https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...

It says:  The safest option to avoid an underpayment penalty is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. If you satisfy either test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.

So going back to my earlier example, if I say paid 30k in taxes in 2020.   Then in 2021 for the first quarter I already owe 100k,  I only have to make a payment of 30k and I am good?   Or I may only have to make a payment of 7.5k (30k/4)?  And then of course make 3 more 7.5k payments later in the year.

This seems like the right answer, but not sure 

[fanfare]

as I said before , if you meet the rules for prepaying based on last year's tax due,

it does not matter how large your capital gain, or any other increase in income.
BUT, you may have a large tax bill on Tax Day.

[daled1]

Yes I think I got it.  I don't mind a large tax bill come next april 15th,  as long as I am not paying extra for penalties.  It seems like a rare case of IRS generosity.

[Hal_Al]

Q. If I make a 30k payment for the first quarter of 2021 estimated, then I won't get an underpayment penalty for 2021?   Even if at the end of the year I end up owing 500k more in taxes?

A. No.  But, if you pay $33,000, yes.  You can pay $33K in the first quarter or  spread it over 4 equal quarterly payments. 

The safest option to avoid an underpayment penalty is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. If you satisfy either test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.

IRS Interest rates: https://www.irs.gov/newsroom/interest-rates-remain-the-same-for-the-second-quarter-of-2020

[sfshore2]

i have  a related question.  I made a $120,000 estimated tax payment in 2020 to cover capital gains on the sale of a rental property. Several years ago the IRS fined me when I was self employed paying estimated taxes. at the time,I had  two quarters where I made money and paid estimated taxes and 2 quarters where I didn't. The IRS told me that I because if was income from work, I was supposed to use previous year earnings to estimate my income and make payments in each quarter. In the case of capital gains however, this is a one time source of income.  How did I indicate this in turbo tax so the IRS knows this was not income from self employment and fine me for not spreading my $120,000 estimated payment through out the year

[Hal_Al]

Q.  How did I indicate this in turbo tax so the IRS knows this was not income from self employment?

A. There is no way. Despite what you think you were told, there is no differentiation on estimated payments , based on source of income.  If you need to  match the timing of the payment with income, by quarter, you select "annualized method"  for filing out for 2210

[sfshore2]

i just found the answer to my own question online

in case anyone wonders,  there is a form 2210 that you can use to annualize your income - show the IRS that you didn't not receive income regularly thoughout the year but rather in 1 or 2 lump sums, like for instance by sale of an assests.  In turbo tax this can be done by opening your return and searching on underpayments of taxes

[Critter-3]

@Hal_Al 

AL told you about the 2210 AI in the post right above yours.  The program always gives you that option if you have any underpayment penalties computed.  

[daled1]

sfshore,

One question, how much tax did you pay in 2019?  If $120k was more than 110% of the tax you paid in 2019,  I believe there should be no penalty.

[sfshore2]

the $120K was based on a capital gain from sale of real estate. It is a one time event.  The 110% rule is about self employed individuals.  I dont think the two are related

[Critter-3]

The 110% rule is not just for SE ... if you enter what the 2019 tax liability was and the amount you paid in estimates then there should be no penalty id  you paid the estimate evenly throughout  the year.  If you did not then you need to complete the 2210AI form to reduce or remove the estimated penalty.   The Program follows the IRS rules on this subject  so you can pay more than needed for the safe harbor method  but still owe an underpayment penalty.  

[Jane H Fox]

I had large capital gains in 2021.  I do not foresee much in 2022.  How do I calculate estimated taxes for 2022?

[ErnieS0]

You do not have to pay estimated taxes if you expect to owe less than $1,000 (though you still may pay some interest for not making timely payments).

Use the TurboTax estimate in the program:

1. Type w-4 in Search in the top right
2. Select Jump to w-4
3. Say No to Do you want to change your W-4 withholdings for 2022?
4. Select Review Now on Review Your Estimates? and update your info.