Author Topic: When do I have to pay estimated tax on capital gains?  (Read 5922 times)

Kimm

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When do I have to pay estimated tax on capital gains?
« on: June 13, 2015, 06:27:04 AM »
Since I am looking to dump my advisor and move in-kind my investments over to Vanguard.
There are some I can't cheaply sell in Vanguard  (some f-2 funds $35 transaction fees). I am willing to take the the capital gains hit, however that will effect my taxes. My question is: do I have to send in the estimated taxes when I sell or can I wait until the end of the year? Or can I just change my w-4 since it's mid year and could make up the extra taxes via my paycheck?

It should be about $30,000 in capital gains added to this years income.
« Last Edit: June 13, 2015, 06:30:38 AM by Kimm »

matchewed

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Re: When do I have to pay estimated tax on capital gains?
« Reply #1 on: June 13, 2015, 06:33:05 AM »
You can wait until the end of the year. Check with your state to see their particular rules.

nereo

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Re: When do I have to pay estimated tax on capital gains?
« Reply #2 on: June 13, 2015, 06:35:15 AM »
If you sell the funds, you will owe taxes on April 15th, 2016.  You can change your W-4 now to increase the amount of tax with-held in your paycheck thereby reducing or eliminating what you will have to pay on 'tax-day'.  However, if you do that you are basically paying your taxes early (which is fine, but the government benefits slightly and you don't).
One other potential pit-fall - if you change your W-4, make sure you change it BACK on January 1st or you will overpay your taxes for 2016.

forummm

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Re: When do I have to pay estimated tax on capital gains?
« Reply #3 on: June 13, 2015, 06:52:30 AM »
I'm curious about the responses. Is there no circumstance when OP might face penalties for waiting until 4/15/16 to pay? My understanding is that if you don't have enough withheld throughout the year you can have a penalty levied. There are exceptions to having a penalty, such as having the amount you underwithheld being under $1k, having withheld 100% of the tax you owed last year, or having withheld 90% of the tax you owe this year.

And there are quarterly filing deadlines for withholding. Do those deadlines apply to capital gains taxes or just to self employed people?

nereo

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Re: When do I have to pay estimated tax on capital gains?
« Reply #4 on: June 13, 2015, 07:32:07 AM »
I'm curious about the responses. Is there no circumstance when OP might face penalties for waiting until 4/15/16 to pay? ...
And there are quarterly filing deadlines for withholding. Do those deadlines apply to capital gains taxes or just to self employed people?
your questioning has me questioning myself.  As I have understood it, you always pay capitol gains when you file your taxes, and that is independent of self-employed people who file their taxes quarterly.  However, I have never had to file quarterly, so perhaps there is an exception for the self-employed. 
NOw i have some reading-up to do...

Financial.Velociraptor

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Re: When do I have to pay estimated tax on capital gains?
« Reply #5 on: June 13, 2015, 09:14:14 AM »
You have to have at least 90% of your liability prepaid by Jan 15 to avoid paying a 10% penalty.  File 1040-ES to make your estimated payments.

seattlecyclone

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Re: When do I have to pay estimated tax on capital gains?
« Reply #6 on: June 13, 2015, 09:23:51 AM »
There is no special rule regarding timing of capital gains taxes. Your total tax liability is expected to be paid throughout the year, through payroll withholding and/or quarterly estimated payments.

That said, there is a "safe harbor" whereby you will owe no penalties at tax time if your withholding throughout the year was at least 100% of the total tax owed the previous year (or 110% if your income the previous year was at least $150k), so if this is your first time owing much capital gains you can probably wait until April as long as your withholding is set up to cover last year's tax liability.

MDM

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Re: When do I have to pay estimated tax on capital gains?
« Reply #7 on: June 13, 2015, 12:36:29 PM »
There is a difference between paying estimated tax vs. having tax withheld.

If you have tax withheld, you can have it withheld in December and that amount is added together with all your other withholdings.  So, other than having the withholding occur sometime during the tax year, time is not of the essence for withholding. 

If you pay estimated tax, the IRS (and, I think, all states) compares the time (usually by quarter) you paid it compared with the time (again by quarter) that your income occurred.  If you are even a quarter late, additional charges apply because time is of the essence for estimated tax.

E.g., see http://www.irs.gov/publications/p505/ch04.html

If these capital gains and your current W-4 mean you don't meet any of the "safe harbor" provisions for avoiding underpayment penalties, increasing withholding in December by enough to avoid the penalties is the most cash flow efficient way to do so.  Up to you to decide how closely you want to play that game, including allowing for payroll department glitches....


Anybody know why brokerages don't provide the option to do withholding on request?