I paid 34k in taxes last year. So far this year, I only paid around 11k in tax withholding through my current job unrelated to stocks and have already made more in half a year than I did for 2018 through stocks. I heard my w2 withholding if I make a huge lump sum will be able to get rid of the penalties for the underpayment for the 1st two quarters. Since I only have a month or so at my current job, my whole paycheck w2 withholding can cover the whole CA state estimated tax but not the federal since federal is much greater. Should I just put the whole amount towards CA state and avoid the 6% interest penalty for the state and pay the 6% for the federal? There is no way I can make 110% of last year's tax liability for federal but I will be able to for state is my reasoning. Any tips?
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Do I have to pay estimated taxes on daytrading stock sales if I am employed as well?
- Thread starter Steven W
- Start date
I paid 34k in taxes last year. So far this year, I only paid around 11k in tax withholding through my current job unrelated to stocks and have already made more in half a year than I did for 2018 through stocks. I heard my w2 withholding if I make a huge lump sum will be able to get rid of the penalties for the underpayment for the 1st two quarters. Since I only have a month or so at my current job, my whole paycheck w2 withholding can cover the whole CA state estimated tax but not the federal since federal is much greater. Should I just put the whole amount towards CA state and avoid the 6% interest penalty for the state and pay the 6% for the federal? There is no way I can make 110% of last year's tax liability for federal but I will be able to for state is my reasoning. Any tips?
For Federal:
If you paid 34K last year in taxes, then I think you'll meet the safe harbor if you have at least $37,400 withheld this year. If you already had 11K withheld, then you have the rest of 2019 to have them withhold 26,400 more (or about $4400 per month).
It's already too late for the June 17th estimated payment.. so if it were me, I would make a huge estimated payment for the Sept 16th date, to more than get you over the safe harbor amount (when considering the combination for what will be included from your W-2 income too.)
I don't live in California and am not familiar with their penalties -- but it might be worth your while to see which one penalizes you more for under-withholding -- and crank up your W-2/W-4 numbers for that one.
If you paid 34K last year in taxes, then I think you'll meet the safe harbor if you have at least $37,400 withheld this year. If you already had 11K withheld, then you have the rest of 2019 to have them withhold 26,400 more (or about $4400 per month).
It's already too late for the June 17th estimated payment.. so if it were me, I would make a huge estimated payment for the Sept 16th date, to more than get you over the safe harbor amount (when considering the combination for what will be included from your W-2 income too.)
I don't live in California and am not familiar with their penalties -- but it might be worth your while to see which one penalizes you more for under-withholding -- and crank up your W-2/W-4 numbers for that one.
In another thread you created, you mentioned that you thought you would be getting fired from your job within the next month. That makes the W-2 withholding strategy moot at this point. The under-withholding penalties are probably almost irrelevant in the grand scheme of things if you are losing you job anyway. Might be a better idea to focus your efforts on finding another job?
This is correct, I've had most of my year's tax withholding held out of my Dec pay and avoided the quarterly payment penalties. Much easier to do when you own the business and can decide what to pay yourself every pay period!I paid 34k in taxes last year. So far this year, I only paid around 11k in tax withholding through my current job unrelated to stocks and have already made more in half a year than I did for 2018 through stocks. I heard my w2 withholding if I make a huge lump sum will be able to get rid of the penalties for the underpayment for the 1st two quarters. Since I only have a month or so at my current job, my whole paycheck w2 withholding can cover the whole CA state estimated tax but not the federal since federal is much greater. Should I just put the whole amount towards CA state and avoid the 6% interest penalty for the state and pay the 6% for the federal? There is no way I can make 110% of last year's tax liability for federal but I will be able to for state is my reasoning. Any tips?
In my opinion, the most conservative, fool-proof method to meet safe-harbor is #5 -- Simply withhold more than 110% of what your entire federal tax burden was for the prior year -- and do it by cranking up your W-2/W-4 withholding if possible, in order to avoid having to worry about your quarterly payments being "spread out correctly."
is it possible to avoid making quarterly estimated taxes for the 1st, 2nd, and 3rd quarters and simply pay the entire 110% of your prior year federal tax burden on the 4th quarter deadline and not face penalties/interest?
that sounds like an obvious loophole the IRS would have closed by now.
is it possible to avoid making quarterly estimated taxes for the 1st, 2nd, and 3rd quarters and simply pay the entire 110% of your prior year federal tax burden on the 4th quarter deadline and not face penalties/interest?
that sounds like an obvious loophole the IRS would have closed by now.
I don't think that is correct. If you look at the applicable form(s), I believe you would need to pay 110% of your prior year tax burden in equal installments to avoid penalty.
The IRS are the ones who publish the safe harbor guidance, take a look at the last paragraph. - https://www.irs.gov/newsroom/the-basics-of-estimated-taxes-for-individualsis it possible to avoid making quarterly estimated taxes for the 1st, 2nd, and 3rd quarters and simply pay the entire 110% of your prior year federal tax burden on the 4th quarter deadline and not face penalties/interest?
that sounds like an obvious loophole the IRS would have closed by now.
is it possible to avoid making quarterly estimated taxes for the 1st, 2nd, and 3rd quarters and simply pay the entire 110% of your prior year federal tax burden on the 4th quarter deadline and not face penalties/interest?
that sounds like an obvious loophole the IRS would have closed by now.
Re-read what I said. I said if you withhold 110% of your prior year burden via W-2/W-4 wage withholding, you meet safe harbor.
Like the other poster said, you could meet it via estimated payments too, but those would have to come throughout the year, in proportion for which quarters you earned income.
The IRS are the ones who publish the safe harbor guidance, take a look at the last paragraph. - https://www.irs.gov/newsroom/the-basics-of-estimated-taxes-for-individuals
how are traders supposed to calculate their expected taxes for each quarter? what's mentioned on the IRS website is of no help to traders imo. it just says:
"When figuring their estimated taxes each year, taxpayers need to account for life events that may affect their taxes. They should also adjust for recent changes in the tax law. They should make adjustments throughout the year if changes occur.
Individuals, sole proprietors, partners and S corporation shareholders generally use the worksheet in Form 1040-ES. They’ll need to know their expected adjusted gross income. They’ll also need to estimate their taxable income, taxes, deductions and credits. Some taxpayers find it helpful to use information from their prior year’s tax return when they complete the worksheet. Their estimates should be as accurate as possible to avoid penalties."
yeah...but how?
with trading, you could possibly make an entire year's worth of profits in a single volatile week.
what if you're profitable during q1 and q4, and not profitable during q2 and q3. why should traders have to pay money for q2 and q3 that they may not even have if they're at a significant loss for q2 and q3?
sure, if you don't want to worry about all this, you could go with the 110% spread out over 4 quarterly payments method. but what if you have a significant overall loss during that trading year? then you basically ended up giving out a 0% loan to the IRS for a year which is detrimental for those working in a profession that sorely depends on capital. that's a chunk of capital that traders could have put to good use.
this whole idea of applying an "expected" income determination from an activity where you can't possibly know your future income is laughable to say the least.
Maybe read the instructions on the form 1040-ES you linked to?how are traders supposed to calculate their expected taxes for each quarter? what's mentioned on the IRS website is of no help to traders imo. it just says:
"When figuring their estimated taxes each year, taxpayers need to account for life events that may affect their taxes. They should also adjust for recent changes in the tax law. They should make adjustments throughout the year if changes occur.
Individuals, sole proprietors, partners and S corporation shareholders generally use the worksheet in Form 1040-ES. They’ll need to know their expected adjusted gross income. They’ll also need to estimate their taxable income, taxes, deductions and credits. Some taxpayers find it helpful to use information from their prior year’s tax return when they complete the worksheet. Their estimates should be as accurate as possible to avoid penalties."
yeah...but how?
with trading, you could possibly make an entire year's worth of profits in a single volatile week.
what if you're profitable during q1 and q4, and not profitable during q2 and q3. why should traders have to pay money for q2 and q3 that they may not even have if they're at a significant loss for q2 and q3?
sure, if you don't want to worry about all this, you could go with the 110% spread out over 4 quarterly payments method. but what if you have a significant overall loss during that trading year? then you basically ended up giving out a 0% loan to the IRS for a year which is detrimental for those working in a profession that sorely depends on capital. that's a chunk of capital that traders could have put to good use.
this whole idea of applying an "expected" income determination from an activity where you can't possibly know your future income is laughable to say the least.
"If, after March 31, 2020, you have a large
change in income, deductions, additional taxes, or credits
that requires you to start making estimated tax payments,
you should figure the amount of your estimated tax
payments by using the annualized income installment
method, explained in chapter 2 of Pub. 505. If you use the
annualized income installment method, file Form 2210,
including Schedule AI, with your 2020 tax return even if no
penalty is owed."
Also, if you go up a couple of posts I shared a way to get around that, basically you can make yourself a W-2 employee and do a big withholding in Dec. A little bit of a pain if you don't already run a business, but not something you couldn't accomplish with a day's work.