Don’t Get Penalized for Having Stock Market Gains - Rodgers & Associates

Don’t Get Penalized for Having Stock Market Gains

Federal income taxes work on a pay as you go basis. Therefore, if you have income that is not subject to regular withholding, it’s likely you’ll need to make quarterly tax estimates. If you don’t pay them, you could be subject to a penalty. Common examples are rental income, interest, dividends, capital gains, and self-employment income. The payment due dates are generally each April, June, September, and January.

In most cases, you must pay estimated tax if both of the following apply:

  1. You expect to owe at least $1,000 (after subtracting your withholding and refundable credits) and
  2. You expect your withholding and refundable credits to be less than the smaller of: 
    • 90% of the tax you expect to owe in the current year, or
    • 100% of the tax shown on your prior year tax return

*Note for higher income taxpayers: If your adjusted gross income (AGI) was more than $150,000 (married filing jointly), substitute 110% for 100%.

The penalty may be applied if you did not pay enough estimated tax for the year or you did not make the payments on time or in the required amount. A penalty may apply even if you have an overpayment on your tax return. On the bright side, the penalty may be waived under certain conditions.

If you also receive wages, a pension, or Social Security, you may be able to avoid having to make estimated tax payments by having more tax withheld from one or more of these sources.

If you receive your income unevenly throughout the year (for example, because you operate your business on a seasonal basis or you have a large capital gain late in the year), you may be able to lower or eliminate the amount of your required estimated tax payment for one or more periods by using the annualized income installment method. Consult your tax preparer if you think you may need to make quarterly tax payments. More details can also be found in the links below.

Origi­nally published September 2013

  1. http://​www​.irs​.gov/​B​u​s​i​n​e​s​s​e​s​/​S​m​a​l​l​—​B​u​s​i​n​e​s​s​e​s​—​&​—​S​e​l​f​—​E​m​p​l​o​y​e​d​/​E​s​t​i​m​a​t​e​d​-Taxes
  2. http://​www​.irs​.gov/​f​i​l​e​_​s​o​u​r​c​e​/​p​u​b​/​i​r​s​—​p​d​f​/​f​1​0​4​0​es.pdf