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Steps for paying uncle sam in advance of tax return filing
Posted on 3/26/24 at 11:48 am
Posted on 3/26/24 at 11:48 am
Buy/long term hold investor here so not as familiar with early tax payments...Say someone sells a stock/option for a very large long term gain of ~$150k. Does that person have to pay the IRS the ~$22,500 LT cap gain now or do you wait to pay it on your tax filing in April 2025 (I assume they want their money now)? If you have to pay now, how does one go about paying the IRS in advance like this? Do you create an account on IRS.gov and go about it that way?
5
Posted on 3/26/24 at 11:58 am to TigerTatorTots
You pay it when you file your tax return.
Posted on 3/26/24 at 12:09 pm to Shepherd88
quote:
You pay it when you file your tax return.
Could be subject to underpayment penalty depending on withholdings and estimated payments relative to prior year income.
Posted on 3/26/24 at 12:15 pm to Shepherd88
quote:So they aren't going to penalize me for owing ~$22,500 next tax filing season? For reference, I just owed ~$500 for 2023 so it would be 2 years in a row where I underpaid.
You pay it when you file your tax return.
Posted on 3/26/24 at 12:22 pm to TigerTatorTots
Posted on 3/26/24 at 1:14 pm to notsince98
I believe it’s 110% of last year’s tax liability if your adjusted gross income is projected to be $150,000 or more. I think you are required to pay 25% of that number quarterly. There may be special rules for those on commissions or incentive plans, but I’m not sure. Contact a CPA to be safe and avoid a penalty.
Posted on 3/26/24 at 1:20 pm to TigerTatorTots
You can pay at any time, lol. The IRS will gladly take your money.
I'd plan on paying it as a quarterly estimated payment, and pay at least 25% of what you expect to owe at the end of the year every quarter.
You just get the basic form from IRS.gov and mail a check in with your SSN.
I'd plan on paying it as a quarterly estimated payment, and pay at least 25% of what you expect to owe at the end of the year every quarter.
You just get the basic form from IRS.gov and mail a check in with your SSN.
Posted on 3/26/24 at 1:50 pm to baldona
Directly from the IRS:
When to pay estimated taxes
For estimated tax purposes, a year has four payment periods. Taxpayers must make a payment each quarter. For most people, the due date for the first quarterly payment is April 15. The next payments are due June 15 and Sept. 15, with the last quarter’s payment due on Jan. 15 of the following year. If these dates fall on a weekend or holiday, the deadline is the next business day.
Farmers, fishermen and people whose income is uneven during the year may have different rules. See Publication 505, Tax Withholding and Estimated Tax, for more information.
If a taxpayer doesn’t pay enough or pays late, a penalty may apply.
When to pay estimated taxes
For estimated tax purposes, a year has four payment periods. Taxpayers must make a payment each quarter. For most people, the due date for the first quarterly payment is April 15. The next payments are due June 15 and Sept. 15, with the last quarter’s payment due on Jan. 15 of the following year. If these dates fall on a weekend or holiday, the deadline is the next business day.
Farmers, fishermen and people whose income is uneven during the year may have different rules. See Publication 505, Tax Withholding and Estimated Tax, for more information.
If a taxpayer doesn’t pay enough or pays late, a penalty may apply.
Posted on 3/26/24 at 2:10 pm to Shepherd88
quote:
You pay it when you file your tax return.
If only it were that simple and logical
Posted on 3/26/24 at 2:26 pm to TigerDeBaiter
Yeah people have a very hard time understanding this.
Posted on 3/26/24 at 10:06 pm to TigerTatorTots
Do you think you might realize some losses later in the year that could net against that gain to bring the total down?
You can make estimated payments easily at irs.gov and if you are in a state with income tax, all states have online payment options as well.
Essentially, you will owe a penalty if you owe more than $1,000 with your tax return, HOWEVER, there are two ways to avoid that.
1) Your total withholding and quarterly estimates are 100 percent of your prior year tax (110 percent if your AGI is over $150K), or
2) Your total withholding and quarterly estimates are 90% of what your current year tax ends up being.
You only have to meet one of those standards.
If you need to make estiamted payments to meet one of those standards, then they further look at the timing, such that 1/4th of that amount must be paid in each installment, which are due April 15, June 15, Sept 15, and January 15.
If you meet one of those standards, it doesn't matter how big your tax return balance is, you won't be penalized as long as you pay it by April 15th.
That's why I'll have clients who owe $5,000 and have a penalty, and clients who owe $50,000 and have no penalty.
You can make estimated payments easily at irs.gov and if you are in a state with income tax, all states have online payment options as well.
Essentially, you will owe a penalty if you owe more than $1,000 with your tax return, HOWEVER, there are two ways to avoid that.
1) Your total withholding and quarterly estimates are 100 percent of your prior year tax (110 percent if your AGI is over $150K), or
2) Your total withholding and quarterly estimates are 90% of what your current year tax ends up being.
You only have to meet one of those standards.
If you need to make estiamted payments to meet one of those standards, then they further look at the timing, such that 1/4th of that amount must be paid in each installment, which are due April 15, June 15, Sept 15, and January 15.
If you meet one of those standards, it doesn't matter how big your tax return balance is, you won't be penalized as long as you pay it by April 15th.
That's why I'll have clients who owe $5,000 and have a penalty, and clients who owe $50,000 and have no penalty.
Posted on 3/27/24 at 4:53 am to TigerTatorTots
I find it better to just keep your money then pay the small fee at tax time for not making estimated payments.
Posted on 3/27/24 at 5:17 am to LSUFanHouston
Excellent answer. You could increase your withholding to meet that and keep the rest until next year. You could put the difference in a money market. Last check thats around 5%. Why pay it early if you don't have to.
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