Windfall Tax Question

[leebuckeye]

I sold some stock this year that resulted in a large long term capital gain in late September. I owe several hundred thousand in taxes.
Last year I became unemployed in november but I paid extra estimated taxes so I got a refund.  I got a new job this February.
My understanding was that I would file and pay this tax in April 2019 without a penalty. My broker called today to talk (he wants a meeting). He thought I owed tax on it this year (or rather he implied it by asking me if I was absolutely sure that I could pay it next year). I am looking for confirmation that I owe the tax next year and not this year. I don't want to pay a penalty on a large tax bill because I miscalculated. I live in Columbus, OH. I was considering paying an estimated tax of $5 to $10k. I would apply for a new credit card and get the bonus but I would essentially keep the extra several hundred thousand through next April possibly investing it for dividends/added income. I think I can do all this without paying a penalty as long as I pay more tax this year than I did last year. Is this correct or have I fundamentally misunderstood something?

[MDM]

Will you satisfy any of the safe harbor rules?  In other words, not need to pay estimated tax?

[leebuckeye]

It looks like the rules for estimated tax and safe harbor are different.
My income last year was less than 150k.
If I pay 110% of the tax that I owed last year, would that mean I would be in Safe Harbor?

Estimated tax safe harbor for higher income taxpayers. If your 2017 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2018 or 110% of the tax shown on your 2017 return to avoid an estimated tax penalty.

Who Must Pay Estimated Tax

If you owe additional tax for 2017, you may have to pay estimated tax for 2018.

You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments.

General rule. In most cases, you must pay estimated tax for 2018 if both of the following apply.
You expect to owe at least $1,000 in tax for 2018, after subtracting your withholding and refundable credits.
You expect your withholding plus your refundable credits to be less than the smaller of:
90% of the tax to be shown on your 2018 tax return, or
100% of the tax shown on your 2017 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers , later). Your 2017 tax return must cover all 12 months.

[leebuckeye]

One added wrinkle. My new job is a state employment job with a higher salary (approx 20%) but it doesn't pay social security tax as it is in a state teaching retirement.  So my total taxes paid this year would be lower if I didn't pay an estimated. So I will pay some estimated but probably only enough to get it to 110% of the total tax I owed last year. I still can't tell if that will keep me in safe harbor.

[MDM]

It looks like the rules for estimated tax and safe harbor are different.

In short, if you
- do need to pay estimated tax (according to the given rules) then you have not reached a safe harbor.
- do not need to pay estimated tax (according to the given rules) then you have reached a safe harbor.

See Form 2210 if you want to get into the nitty-gritty details.

[LetItGrow]

Wow, that was a big sale. Over half million in tax? So over a couple million in gains. Wow, just wow. Congrats, a good problem to have. I'm guessing not BND.

[walkwalkwalk]

Just to be clear, social security taxes have nothing to do with how much you have paid in - FIT - federal income tax is all that matters when filing a tax return. (Unless you meant you would be above the social security limit so you would get the social security taxes back when you filed)

[Nothlit]

One added wrinkle. My new job is a state employment job with a higher salary (approx 20%) but it doesn't pay social security tax as it is in a state teaching retirement.  So my total taxes paid this year would be lower if I didn't pay an estimated. So I will pay some estimated but probably only enough to get it to 110% of the total tax I owed last year. I still can't tell if that will keep me in safe harbor.

Keep in mind Social Security tax is entirely separate from federal income tax. The safe harbor rules & underpayment penalty are in the context of federal income tax. The "total tax" that matters for safe harbor is the amount on line 63 of your 2017 Form 1040.

[leebuckeye]

I plan to pay the estimated tax in a week or two. I plan to apply for a credit card and get some points for doing this.

[secondcor521]

I'm pretty sure that if you're filing MFJ and since your income was under $150K for 2017, then one thing you can do to achieve safe harbor is to pay in at least 100% of the total tax on your 2017 federal tax return.  This is per the last line on your second post on this thread.

Of course, you'll still have to pay the balance owing by April 15, 2019, so make sure you have that set aside somewhere safe and accessible.

You can do the points route; just realize that the fee to pay taxes by credit card is pretty high, so you won't net as much as you think.  If it helps you get one of those credit card new account opening bonuses ($500 for spending $5K in the first 3 months or whatever) then it's probably worth it.

[leebuckeye]

I would be filing as a single person, but yes was going to for one of those Chase cards that gets me 60 or 80k UR points. The two percent charged would be more than $120-$200 as I would pay around $6k or $10k to ensure that I meet the safe harbor.

[powskier]

Based on the amount you owe, and the gains you made, you should probably spring for a CPA rather than random internet folks.

[Much Fishing to Do]

Based on the amount you owe, and the gains you made, you should probably spring for a CPA rather than random internet folks.

I see this kind of comment a lot and frankly just don't get it.  If the OP didnt make a $5k estimated payment now that was due, then the penalty on that by tax time would be about $5k *.06 *.25 = $75.  Why would i not try to obtain information from the masses for me to evaluate, and rather trust in a CPA that doesn't care as much about my taxes as I do, and who can get things wrong (I've seen it more often than i could believe), to possibly save $75 when its gonna cost me more than that for his advice?

[MustacheAndaHalf]

My broker called today to talk (he wants a meeting). He thought I owed tax on it this year (or rather he implied it by asking me if I was absolutely sure that I could pay it next year). I am looking for confirmation that I owe the tax next year and not this year.

Why would your broker be an expert on matters of tax advice?  I don't think you want to rely on someone who isn't an enrolled agent, a CPA, a tax attorney, or at least someone (like on this forum) who points you to the correct IRS forms / information.

One other wrinkle - if your broker convinces you to do some more selling to pay your tax bill, they probably get a commission on those sales.  So not only are they not an expert, they stand to benefit financially from certain actions that might not be in your best interest (since selling means incurring more taxes next year).