Obviously you'll incur a penalty if you're late paying the amount due under any safe harbor (including the AI) method.But not if each on time payment is at least 1/4 of last year's tax, or (if lower) the tax due for that quarter on the Annualized Income Method. With your method it could easily happen when you have a large gain in the 2nd or later quarter. If you had truly Annualized this wouldn't happen, and usually annualizing with your return will eliminate the supposed error, but, unfortunately, after the year's over most people can't reconnstruct their records on a tax quarter basis, and the computations are daunting, and even worse if one is subject to the AMT and phaseouts.The chief advantage to Annualizing (in advance) is not to pay less for the year, because you will owe either the amount of last year's tax, or 90% of the full current years tax for your full year of withholding and estimates regardless, but its big plus is its ability to lower initial quarters' installments to less than either safe harbor, and calculate how much to adjust later installments to prevent a penalty.edVery true. Thanks for pointing that out. What I am doing may not be annualizing in the strictest definitional sense. Typically all of my normal income taxes are paid monthly through withholding on my pension. I have a cushion built in to that so that I can earn a nominal amount of additional funds, interest, dividend income and other anticipated sources, in an attempt to break even at the end of the year. I don't include in that cushion the anticipate sale of equities, as I typically buy and hold long term. My recent sale was the first one I have sold in ages. I, therefore, rarely ever have to resort to a quarterly tax payment. After reading your response, I may have been confusing the fact that I might owe additional taxes for the year with the penalty that may or may not be applicable. Whether I am accomplishing my objective of avoiding a penalty by design or by accident, so far my spreadsheet has kept me out of trouble.I think I am clear on the when question as far as the additional taxes due on the sale of my equity. Since you have graciously elaborated on the penalty aspect, I think I am also clear on that. Your explanation is consistent with what I have read on the topic. Since I don't meet the criteria for the 110% rule to apply, I think I am safe so long as I pay timely either 100% of last year's actual tax due OR 90% of the actual taxes due for the current year.Thanks again for your help.