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Financial Planning / Tax Strategies


Subject:  Re: Two Related Tax Issues Date:  7/5/2008  1:17 PM
Author:  edcosoft Number:  101262 of 127642

So rather than owing taxes, per se, on the specific LTCG, it sounds like I would have to look at cumulative total income for each quarter and just assess whether taxes through regular withholding are sufficient to cover any gain realized. To the extent there are residual taxes due, I presume that would be the amount I would need to pay on the quarterly tax estimate. Otherwise, I presume no additional taxes would be due. Makes sense. I have an Excel spreadsheet that will likely help me in that regard.

If your withholding this year will be a much as you paid ( or 110% of as much as you paid if your AGI was over $150K last year) in total taxes last year you don't need to pay ANY installments. Or, you could increase your withholding to meet this "Safe Harbor". Or, pay ONE installment to cover the difference for the first quarter where your gains make your current year's tax more than last year's tax (or 110%)

What you are suggesting in cumulative computing is called "Annualization" and is only advantageous if your current (cumulative) income level (and withholding) is lower than last year's tax (otherwise you would just pay 1/4 of last year's tax each quarter). You seem to be trying to cover the CURRENT year's tax increase due to the gain by Annualizing. You will end up paying considerable more than necessary. You should read the discourse in 1040ES and/or Publication 505, or even the discussion about estimated taxes on this and other boards. No spreadsheet will help you unless it actually computes the Annualized Income Method of IRS form 2210 and its Schedule AI.

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