should I pay taxes now on a LT capitol gain on stock sold

[Ed Romano]

Hello.  So I sold some bank stock from a small town community bank. There is a long term gain of a $39,728.00. I am retired and my wife works part time but will start drawing her state pension in August.

I didn't know if I should fill out some form and pay some taxes now on that gain now so I don't have to pay a penalty next year.

Some other info which might help. My wife's PT wages this year will be about $15,000.  Her pension will be $18,560.  Last year, our investments brought in $13,170 in interest, dividends and cap gains.  Of course I don't know what that will be in 2022.    thanks!

[melj1]

Hi Ed,

Great question. You can meet your requirement of estimated taxes by using what is known as the safe-harbor. 

The IRS will not charge you an underpayment penalty if: 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, or. You owe less than $1,000 in tax after subtracting withholdings and credits. You will still have a significant tax due by April 15th next year and should plan for it. There is nothing to prevent you from paying larger estimated tax than required. The easiest way to make any estimated payment is to go to irs.gov/payments.  In the alternative, you can use a form 1040es and attach a check and mail it in.

[JoeD_CPA_CFP]

Hello Ed,

In general, to determine if you should pay any estimated tax during 2022 as a result of the gain on the stock, you could find that information here, Estimated Taxes

You may avoid an estimated tax penalty if:

• Your filed tax return shows you owe less than $1,000 or
• You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.

If you determine that you are required to make an estimated tax payment, you would go to irs.gov/payments to do that. I am providing a detailed explanation of how to determine what to pay and when along with a

 Tax Calculator . Here is a web link to help you determine the capital gain rate if you need more detailed information. Capital Gain Guide

[Ed Romano]

I retired last year and work over half the year. This is the 1st year of not working. So not sure about some of those 'estimates' based on last year's income as it will be different this year. 

[melj1]

Ed, 

I understand that your income may differ this year. If you want to avail yourself of the safe harbor, you will need to use last years tax with no changes. Your capital gain will result in more tax than the prior year. It is all one account.

Mel

[Ed Romano]

Do you take 'what you paid' and then subtract the 'refund amount' to decide what to pay? And just not sure how that 'physically' happens. And the Iowa state form...not sure. I may just need to meet with someone in person.

Thanks,

Ed

[JoeD_CPA_CFP]

Ed,

You would make sure all income tax withheld and paid in as estimated tax would be 100% of the total tax* you owed on the 2021 return -or- 90% of the tax you will owe for 2022 to avoid the estimated tax penalty. Here is the estimated tax worksheet.

*Total tax-Form 1040 line 24

[SundayInSalem]

IRS wants you to pay estimated tax if you expect to owe $1,000 or more.

You can use TurboTax’s free TaxCaster app to estimate your balance due. You don’t say how old you are, how much tax is being withheld from your wife’s job and pension, nor whether you itemise deductions.

All those factors will determine whether you need to pay estimated tax.

To avoid penalty, you should pay any estimated tax in the same period that you sold the bank stock (or as close to it). For example, you could still get an estimated tax penalty if you sold the stock in January and didn’t make a payment until December because you had 11 months where tax was due.

You can make a direct payment to the IRS at Direct Pay or you can fill in and mail payment vouchers.