Long Term Capital Gain Taxes

[Bissawo]

I will be selling my long-term capital gain this year. UBS agency will send my 1099 form Feb 2025 showing what I owe in taxes.  Will I get penalized for not having enough taxes taken out? How much do I pay? 20% Federal / 10% State?  How can I pay this before Feb 2025 to avoid any penalties?

[marctu]

Thank you for your question.   I would use these two resources to help you plan for the long-term capital gain as part of your income for 2024:

TurboTax Calculators:

TurboTax's W-4 Calculator

TurboTax's Tax Caster tax calculator

Assuming you have a W-2 you can adjust for the extra income now, and avoid any underpayment.  You can also make a fourth quarter estimated payment on 1/15/2025 to avoid any potential estimated tax penalty though with this single income event you may already meet the Safe Harbor Rule for estimated tax penalties, which is:

• You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year (This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI) on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.), or
• You owe less than $1,000 in tax after subtracting withholdings and credits

Be well and safe @Bissawo  

[Bissawo]

What is the Safe Harbor Rule?  Where do I find on my 2023 taxes my Adjusted Gross Income?  I filed jointly and our combined income was around $162,000.

[marctu · Accepted solution]

Your can find your AGI for 2023 by looking at Line 11 on Form 1040, 1040-SR and 1040-NR.  You can also on the Turbo Tax Home page after you sign in go to Your Tax Returns and Documents and looking at 2023 click on Adjusted Gross Income. 

The Safe Harbor Rule for Estimated tax payments was written in the answer above.  I am copying it for visibility:

• You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year (This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI) on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.), or
• You owe less than $1,000 in tax after subtracting withholdings and credits

Be well and safe @Bissawo  

[Terri Lynn]

Good afternoon, Bissawo!

You asked about long term capital gains,taxes, how much you should withhold for taxes and how you can pay in advance to avoid owing any penalties.

The first step in how to calculate capital gains tax is to generally find the difference between what you paid for your asset or property originally and how much you sold it for, minus any fees or commissions, that were paid.

The Long-term capital gains tax ,is a tax applied to assets that were held for more than one year. The usually more, favorable,  long-term capital gains tax rates are 0%, 15% and 20%, depending on your filing status and total taxable income. 

To help calculate how much you may want to pay in advance,  I would recommend using a capital gains tax calculator.  Now to avoid any underpayment penalties on these gains,  you will need to make an estimated tax payment by the 15th of the moth following the end of the quarter, the sales take place.  For example: if the capital-gains distributions occur in the fourth quarter, (October-December of 2024), you. would need to make a sufficient 4th quarter estimated payment by January 15th, 2025 to cover the capital gains tax   You should keep in mind though, that avoiding the underpayment penalty all together,  requires that you have paid  in, or withheld a sufficient amount of taxes to cover your total tax obligation for the entire  year.

Please checkout the links below, for additional tools and guidance.

• Capital Gains Tax Calculator 
• TurboTax Guide to Capital Gains Taxes  

Thank you for joining us today and have a great rest of your day!

Terri Lynn, EA

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[rjs]

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@Bissawo  wrote:

UBS agency will send my 1099 form Feb 2025 showing what I owe in taxes.

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@Bissawo  

The Form 1099-B that UBS sends you in 2025 will not show the amount of tax that you owe. It will show how much you sold the investment for, and probably how much you paid for it and the amount of gain. The gain (profit) is the selling price minus the amount you paid to purchase the investment.

As Terri Lynn mentioned, the amount of tax that you have to pay on the gain depends on your filing status, your total taxable income, and possibly other factors. UBS does not have that information, so they cannot calculate the amount of tax. The tax will be calculated on your tax return.