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Message
Best Practices For Preemptively Paying Taxes
Posted on 1/30/21 at 7:56 pm
Posted on 1/30/21 at 7:56 pm
Being up roughly more than your average salary in just a few weeks since the New Year, I’m trying to plan ahead for the tax bill I’ll receive come next year. For you savvy investors of the board, how do you treat this issue?
I’ve heard some folks recommending setting aside a portion of your assets and putting in a high interest savings account, others say continue to trade with it, etc. I’m going to meet with a financial advisor about the best practices to take but what do all of you do?
TIA!!
Edit: I am referencing capital made in the stock market through investing, not a job salary.
I’ve heard some folks recommending setting aside a portion of your assets and putting in a high interest savings account, others say continue to trade with it, etc. I’m going to meet with a financial advisor about the best practices to take but what do all of you do?
TIA!!
Edit: I am referencing capital made in the stock market through investing, not a job salary.
This post was edited on 1/30/21 at 11:19 pm
7
Posted on 1/30/21 at 8:06 pm to facelessman07
I have a money market fund I put the money in. Yeah I'm only making 0.4% but I know the money will be there when it's time.
Posted on 1/30/21 at 8:30 pm to facelessman07
quote:You’re not planning on making quarterly estimated payments this year?
plan ahead for the tax bill I’ll receive come next year.
Posted on 1/30/21 at 8:51 pm to facelessman07
With interest rates so low probably would just make estimated payment
As long as you are paying tax on what you made last year you are safe from penalty perspective
As long as you are paying tax on what you made last year you are safe from penalty perspective
This post was edited on 1/30/21 at 8:52 pm
Posted on 1/30/21 at 8:55 pm to facelessman07
If you have not paid X% of your tax owed by end of year, you will owe a penalty.
I personally thing no tax should be collected except on April 15. That way everyone would see how much we are paying.
I bet we might not want 14 million for “gender studies in Iran” or whatever.
I personally thing no tax should be collected except on April 15. That way everyone would see how much we are paying.
I bet we might not want 14 million for “gender studies in Iran” or whatever.
Posted on 1/30/21 at 9:38 pm to facelessman07
quote:You may not want to wait till the end of the year, quarterly has always been what I thought was required.
I’m trying to plan ahead for the tax bill I’ll receive come next year. For you s
quote:Id give a meeting with a CPA a little more weight.
I’m going to meet with a financial advisor about the best practices to take but what do all of you do?
Posted on 1/30/21 at 10:18 pm to LSURussian
Maybe I should now?
I've only been trading for less than a year so that's why I'm trying to figure out how best to manage my money.
I've only been trading for less than a year so that's why I'm trying to figure out how best to manage my money.
Posted on 1/30/21 at 10:21 pm to makersmark1
So wait a minute, just to make sure we're on the same page, I'm talking about my taxes for the 2021 year starting in January which I will perhaps have to pay additional on when I get my statements come next year.
Does what you said in your post still apply? That I will owe a penalty if I don't go ahead and pay taxes before the filing period? I can't simply file next year and add up how much I owe and then pay?
Does what you said in your post still apply? That I will owe a penalty if I don't go ahead and pay taxes before the filing period? I can't simply file next year and add up how much I owe and then pay?
Posted on 1/30/21 at 11:08 pm to facelessman07
quote:
Best Practices For Preemptively Paying Taxes
quote:Am I missing something?
salary
If you're salaried, then you should be having taxes withheld automatically from every paycheck. Salary goes up, withholding on those paychecks automatically goes up too.
If you're 1099/self-employed then you should be paying taxes quarterly, with 1st quarterly for 2021 due April 15. If you pay taxes quarterly then just pay at least enough based on last year's total income to avoid penalties. But if you're ahead from last year, you can just increase your quarterly estimated tax payments to avoid a tax bill when you file for 2021 next year.
ETA: nevermind, I see that you're talking about being up due to trading stocks. Ignore my prior comments because I'm not sure how it works with stock market trades. I only have stocks in retirement accounts and never cashed anything out to create a taxable event
This post was edited on 1/30/21 at 11:11 pm
Posted on 1/31/21 at 2:04 am to facelessman07
quote:The IRS requires “pay as you go.”
I can't simply file next year and add up how much I owe and then pay?
There are some “safe harbor” rules where you are protected from penalties if you under withhold during the year but I don’t recommend you assume you’ll be covered by those because if you’re not the penalties and interest you’ll owe can be substantial.
The quarterly due dates for paying estimated taxes are April 15, June 15, September 15 and January 15 of the next calendar year.
Posted on 1/31/21 at 5:42 am to LSURussian
quote:
There are some “safe harbor” rules where you are protected from penalties if you under withhold during the year but I don’t recommend you assume you’ll be covered by those because if you’re not the penalties and interest you’ll owe can be substantial.
The quarterly due dates for paying estimated taxes are April 15, June 15, September 15 and January 15 of the next calendar year.
Good info as I'm sure this is new territory for a lot of people
Posted on 1/31/21 at 6:05 am to Powerman
Let me ask another question as I just opened a brokerage account
If I buy stocks throughout the year, and never sell anything do I still pay taxes if they go up? These are unrealized gains correct?
If I buy stocks throughout the year, and never sell anything do I still pay taxes if they go up? These are unrealized gains correct?
Posted on 1/31/21 at 6:10 am to facelessman07
quote:
So wait a minute, just to make sure we're on the same page, I'm talking about my taxes for the 2021 year starting in January which I will perhaps have to pay additional on when I get my statements come next year. Does what you said in your post still apply? That I will owe a penalty if I don't go ahead and pay taxes before the filing period? I can't simply file next year and add up how much I owe and then pay?
The taxman wants it as you go.
Let’s say you ended up +25K for the year in stocks held less than a year. Depending on your income level, you owe between 5k and 10k in state and federal taxes. If your taxes withheld are not at least (I can’t remember the exact %) X% of your income tax owed, there will be a penalty.
So that’s why at the end of the year some people will sell their loser stocks to offset the gains. Interestingly net losses can only offset income by 3k a year, but gains are unlimited.
Posted on 1/31/21 at 7:09 am to makersmark1
The penalty is small, if you are already paying quarterly taxes or having them withdrawn from your paycheck, I wouldn't worry about it. On $25,000 I would bet it's less than $100
Posted on 1/31/21 at 7:39 am to LSURussian
quote:
April 15, June 15, September 15 and January 15 of the next calendar year.
Is this suppose to read April, July, October, and January 15th?
Two weeks after the close of each quarter?
Posted on 1/31/21 at 8:20 am to Dock Holiday
quote:No.
April 15, June 15, September 15 and January 15 of the next calendar year.
Is this suppose to read April, July, October, and January 15th?
Two weeks after the close of each quarter?
Posted on 1/31/21 at 8:56 am to AirbusDawg
quote:On a $25,000 underpayment of withholding, assuming none of the safe harbor rules are met and he doesn’t pay his taxes due until April 15, 2022, the penalty he will have to pay will be approximately $850.
The penalty is small, if you are already paying quarterly taxes or having them withdrawn from your paycheck, I wouldn't worry about it. On $25,000 I would bet it's less than $100
quote:
The standard penalty is 3.398% of your underpayment,
LINK
Posted on 1/31/21 at 9:17 am to Ron Cheramie
quote:
Let me ask another question as I just opened a brokerage account
If I buy stocks throughout the year, and never sell anything do I still pay taxes if they go up? These are unrealized gains correct?
Currently you are not taxed until you sell and gain or lose is realized. It is either longterm (lower rate) or short term held less than a year.
Yellen in a recent interview noted she was open to taxing unrealized gains
Posted on 1/31/21 at 9:22 am to LSURussian
quote:
No
I'm seeing April, July, September, and January
I had the two week after close wrong, and had October wrong.
June was wrong in your original guidance .
Posted on 1/31/21 at 11:01 am to Dock Holiday
quote:*sigh*
I'm seeing April, July, September, and January
I had the two week after close wrong, and had October wrong.
June was wrong in your original guidance .
Because of the COVID pandemic the IRS changed the April 15, 2020 Form 1040ES due date AND the June 15, 2020 due date back to July 15, 2020. They also extended the 1040 tax return filing date to July 15 from its normal April 15 date although they required payment of taxes due to be paid by 4/15/20.
From the original 1040ES instructions for 2020:
quote:www.irs.gov/form1040es.pdf
Payment Due Dates
You can pay all of your estimated tax by April 15, 2020, or in four equal amounts by the dates shown below.
1st payment................. April 15, 2020
2nd payment................ June 15, 2020
3rd payment................. Sept. 15, 2020
4th payment................. Jan. 15, 2021
That was a one-time only change, so they said at the time, for delaying the estimated tax payments due dates in 2020 to help taxpayers who had been negatively impacted financially by the pandemic.
So far the due dates for filing estimated taxes for tax year 2021, which is the year the OP is concerned about, have returned to the long-standing dates of 4/15, 6/15, 9/15 and 1/15, which is what they have been for decades.
And, so far, the usual April 15 due date for filing our tax returns without an extension is in effect.
quote:msn
When are taxes due? Tax deadlines for 2021
Estimated taxes are due quarterly with Form 1040-ES.
First quarter payments are due April 15
Second quarter payments are due June 15
Third quarter payments are due Sept. 15
Fourth quarter payments are due Jan. 15
quote:Tax Calendars-For use in 2021: www.irs.gov
June 15
Individuals.
If you’re a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, file Form 1040 or Form 1040-SR and pay any tax, interest, and penalties due. Oth-erwise, see Individuals under April 15, earlier. If you want additional time to file your return, file Form 4868 to obtain 4 additional months to file and pay what you estimate you owe in tax to avoid penalties and interest. Then, file Form 1040 or Form 1040-SR by October 15.However, if you’re a participant in a combat zone, you may be able to further extend the fil-ing deadline. See Pub. 3, Armed Forces' Tax Guide.Individuals.Make a payment of your 2021 estimated tax if you’re not paying your income tax for the year through withholding (or won't pay in enough tax that way).
Use Form 1040-ES. This is the second installment date for estimated tax in 2021.
If you want to wait until July 15, 2021 to pay your second quarterly estimated taxes, that's okay with me...
This post was edited on 1/31/21 at 11:10 am
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