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Author: RockyTopBob Big gold star, 5000 posts Old School Fool Pro Community Winner Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121169  
Subject: Estimated tax for gains Date: 12/3/2013 7:02 PM
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Hi folks,

I saw a reference to this board from TMFVenus posted on TMF PRO. She said there were many tax experts here.

I have always paid quarterly tax payments because I have had significant capital gains and I'm retired. I trade a lot of options. My wife still works and has extra withholding but that doesn't cover the necessary tax due.

My son has, due to the recent bull market and sage TMF advice, recently entered this tax concern. He sold a lot of stock to help buy a new house. His withholding has always resulted in a small refund. So he hasn't considered quarterly tax payments. If he just goes to year end and adds in his capital gains he will have under withheld and be subject to a penalty.

So should he just get a quarterly form and mail the IRS a check? Or will he not get a penalty since all previous years resulted in a refund?

We both have always used TurboTax and Gainskeeper.

Regards,

Bob
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119622 of 121169
Subject: Re: Estimated tax for gains Date: 12/3/2013 8:26 PM
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So should he just get a quarterly form and mail the IRS a check? Or will he not get a penalty since all previous years resulted in a refund?

One exception to the underpayment penalty is having withholding that is at least 100% (110% for higher incomes) of your prior year tax. If he meets that exception, he can pay an unlimited amount of taxes on April 15 with no penalty worries.

If he doesn't meet that exception, then estimated tax payments are in order. And depending on the timing of his gains, it may be too late to make an estimated tax payment and avoid a penalty, although the sooner the estimated tax payment is made, the smaller the penalty will be.

And it's not a terribly large penalty - it's calculated like interest from the date the estimated tax payment should have been made to the date it was actually paid. I'm pretty sure the current "interest" rate for the underpayment is 3%. I've got a few clients who are choosing to pay this penalty, as it's the cheapest short-term money they can borrow at the moment.

--Peter

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Author: RockyTopBob Big gold star, 5000 posts Old School Fool Pro Community Winner Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119624 of 121169
Subject: Re: Estimated tax for gains Date: 12/4/2013 10:08 AM
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Hi Peter,

Thank you very much for your quick reply. I think these free boards are a great asset provided by TMF and individuals like yourself.

Regards,

Bob

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