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I sold some stock in January of this year and am in the process of paying estimated taxes on the gain.(I work part-time and state and federal taxes are taken out)I have been told two totally polar(to me)things: 1) that I needed to pay on the estimated taxes now or pay a 10% penalty by the Federal gov't at a later date and 2)I could wait til April of 2001 pay the whole amount of estimated taxes with the money I have been growing for that purpose without the penalty. Would you please clarify for me which is correct?

Number 1 is definitely incorrect. The penalty isn't 10%, and if you sold stock in January and are required to make estimated tax payments, starting now won't eliminate the penalty. Under this scenario you had to start making those payments in April 2000.

Number 2 may be correct, but without more information it's impossible to tell. Please check out the article in the FAQ on Estimated Taxes, paying special attention to the safe harbor based on last year's tax. Also remember that if your year 2000 tax minus withholding is less than $1,000, you don't have to make estimated tax payments.

If you need to come back for more help after reading that article, please provide us with some numbers.

TMF ExRO
Phil Marti
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