When do traders have to pay the taxes - is it quarterly or annual when filing the taxes ?

I also started trading recently as a consequence of covid-19. It has changed my life, for the better. I don't work and 95% of my income is short term capital gains so I knew I had to quickly figure out my taxes. What I summed up is:

Go online to the IRS website and make quarterly payments based on how much you've already made or conservatively estimate how much you think you will make and that's pretty much it. You can always adjust payment on the next quarter. The point is showing goodwill effort to not forget Uncle Sam.
 
If your projected payments for this year (quarterly estimated tax payments or monthly withholding), are less than 110% of your last tax bill, yes you should adjust and pay every quarter. So, to avoid paying too much in advance and to avoid legally any penalty, you should pay every year 110% of the previous year (again, quarterly or monthly withholding).
So the rule is 110% not less.
Best!
 
Another trick if you also have W-2 salary is to just have your last couple W-2 paychecks of the year go entirely to tax withholding such that it covers your estimated tax. While quarterly payments have to be made quarterly or you get hit with a penalty and interest based on the time you were supposed to make the quarterly payment and when you actually pay your taxes, the IRS considers withholding to cover you for any liability during the year regardless of when you do the withholding. If you run your own business this is easy to do, if not you may be able to ask your employer for a custom withholding amount.
 
I always file quarterly and I trade futures. I can’t justify not paying in if I owe $20k+ each quarter. Eventually irs is gonna ding u. Especially if u have other income coming in
 
What is the Safe Harbor Rule?
The IRS knows that people who aren't working a traditional W-2 job might have irregular income. So they offer a little leeway and won't punish you if you're a little short.

The estimated safe harbor rule has three parts:

  • If you expect to owe less than $1,000 after subtracting your withholding, you're safe.
  • If you pay 100% of your tax liability for the previous year via estimated quarterly tax payments, you're safe. If your adjusted gross income for the year is over $150,000 then it's 110%.
  • If you pay within 90% of your actual liability for the current year, you're safe.
So they expect you to be close (or over), and won't penalize you if you don't get it exactly right.

https://wallethacks.com/estimated-taxes-due-dates-safe-harbor-rules/

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My understanding is that as long as you catch up in the 4th quarter, you can underpay in the previous 3. Just like the above quote says: "If you pay within 90% of your actual liability for the current year, you're safe."

The government would prefer a steady income through the year, but they are not going to the trouble of checking individuals' quarterly returns. It is more of a honesty issue. What they can and do check is the annual income so if by the end of the 4th quarter you seriously underpaid annually, then you can be in trouble. But if your 4th quarter check is a fat one, Uncle Sam is happy.

Legal note: I got my accounting degree from Trump University, so there is that.
 
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Pekelo said:
"If you pay within 90% of your actual liability for the current year, you're safe."
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Unfortunately, if your taxable income is unpredictable, it's not always that easy.

One year, even though my withholding plus estimated tax payments were more than the tax I owed, TurboTax decided I needed to pay an estimated tax penalty. I think the penalty was because I didn't pay 110% of the tax owed the previous year.

That's $3 I'll never see again.:p
 
Sig said:
Another trick if you also have W-2 salary is to just have your last couple W-2 paychecks of the year go entirely to tax withholding such that it covers your estimated tax. While quarterly payments have to be made quarterly or you get hit with a penalty and interest based on the time you were supposed to make the quarterly payment and when you actually pay your taxes, the IRS considers withholding to cover you for any liability during the year regardless of when you do the withholding. If you run your own business this is easy to do, if not you may be able to ask your employer for a custom withholding amount.
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%%
Good thinking; I never thought of that.
I did round up on milage +round up to nearest $1.00/not sure the latter saved me taxes /but did save time.Funny how the milage deduction is the same for a old used car or new Cadillac/mercades.Never drove the latter but I do keep up with tax law when I have to./LOL...…………………………………………………………………………………………………………………………………………..Most people don't give 10% but like the IRS agent admitted =she knows some do.
 
VicBee said:
I also started trading recently as a consequence of covid-19. It has changed my life, for the better. I don't work and 95% of my income is short term capital gains so I knew I had to quickly figure out my taxes. What I summed up is:

Go online to the IRS website and make quarterly payments based on how much you've already made or conservatively estimate how much you think you will make and that's pretty much it. You can always adjust payment on the next quarter. The point is showing goodwill effort to not forget Uncle Sam.
More...
Do you have Trader Status? I am thinking your gain is just capital gain, not earned income, so you may not need to make the estimated tax?
 
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