I made an unexpected big profit in stock market last week. I never owed any tax in the past. Should I pay estimated tax right now? Will I get a penalty next year if not?

[lhyzp]

Also, my withhold this year should be more than my total tax last year. If no federal estimate tax, how about state tax? (I live at Maryland.) Thanks.

[rvhatcher]

Here's what we do. When we sell a stocks in a quarter we add up the long term gains and pay estimated at 15% and for short term gains at 22%.  that keeps us safe.  So, yes, pay your quarterly estimated taxes to both the feds and the state.  TT will tell you when it's due and print a form for you.

[ColeenD3]

It is better to estimate the tax on the gain and send in a payment by April 15. Do this for both Federal and State. You can withhold more, but it may require more work.

Yes, if you underpaid for this quarter, you will receive a penalty.

[Mike9241 · Accepted solution]

one way to avoid federal penalties for not paying in enough taxes on a timely basis is for your 2022 withholding to be 90% of your 2022 tax or 100% of your 2021 tax (that 100% increases to 110% if your 2021 AGI is over $150K).   so if you meet either exception there is no penalty for failure to pay in more taxes to cover the tax bill on capital gains.   but here's a warning.  some people can't seem to save. then comes tax time and they have trouble paying their taxes if their bill jumps.   so if you're a spender it would be better to pay now then to have problems come 4/15/2023.  if you're a saver, you should be okay but sometimes things do come up that can  have a deleterious financial effect  

[fanfare · Accepted solution]

to clarify withholding includes Estimated Tax payments, and if you meet those percentages there is no penalty no matter how much you income goes up for whatever reason.

Note: the year is not over so unless you get out of the market completely, you may lose that profit back, worse you may lose it back in 2023 but still you will have the tax bill for 2022.

That's the biggest reason to pay the Estimated Tax now not later.

So be careful.

[lhyzp]

Thanks for the great advice. Yes, I am quite sure that I will withhold more than 100% of my last year tax. But this applies to Federal tax only, right? Or it works with state tax as well? Will I still get penalized by state even if I withhold more than 100% of last year's tax but less than this year's tax?

[BillM223 · Accepted solution]

For Maryland, it's 110% of last year's tax (see line 9 of the 502UP).

Note that certain credits can make this amount adjustable, so look at the form.