I know that if I sell a stock and realize a large cap gain, I will have to pay taxes on that gain because none were withheld. I also know that if you end up owing more than $1000 in taxes when you file, you will get penalized. My question is this -- when is the cutoff for realing a cap gain, and not paying estimated taxes? To illustrate -- I sell a stock on Dec 15 99 and realize a long term cap gain of $100,000. I will owe $20,000 of this to the IRS, so when I file my taxes in Apr of 2000, assuming all my other taxes issues net to 0, I will owe the IRS $20,000. Will I get penalized for this? I wouldn't think so. The other scenario is that I sell the stock on Jan 1, 99. Again, $20,000 of long term cap gains, but this time I held onto the gains for over a year. Please help me.

Thanks,
Mike

If other issues haven't changed from last year--that is, if your taxes withheld from your regular job were at least as much as your 1998 income--105% if you are REALLY well paid--then you don't have a problem. You file your 1999 taxes by the due date, enclose a check for the tax on your windfall, and you and Uncle are square. If the windfall was in January 1999, you had a whole year to use the money, pay tax when due, and still square.
If you do not reach the safe harbor, it is tougher. There is a form to file with the tax payment explaining that you did not get the income until Dec 15, 1999. However, if this is the case you were supposed to pay the tax with your last quarterly estimate on Jan 15, 2000. If the windfall was in January and you did not reach the safe harbor, you were supposed to either get your regular employer to withhold more or file quarterly estimates.
In general, I work very hard to stay in the "safe harbor" so no surprises arise from capital gains.
Best wishes, Chris

Read the article in the FAQ on Estimated Taxes, paying special attention to the portion on safe harbors. If an estimated tax requirement arises during the course of the tax year, you start making estimated payments at the next estimate due date, dividing the required payment by the number of remaining estimated payments.

Phil Marti
Tax Preparer

Read the article in the FAQ on Estimated Taxes, paying special
attention to the portion on safe harbors. If an estimated tax requirement
arises during the course of the tax year, you start making estimated
payments at the next estimate due date, dividing the required payment
by the number of remaining estimated payments.

Phil Marti
Tax Preparer

I beg to differ, but if a requirement arises (such as from a large capital gain) do the following:
1. Increase your withholding only enough to equal last year's taxes (or 108.6% if your AGI was over $150,000) or 90% of this year's taxes, if lower. This extra withholding can be spread out through the year, or paid in a lump as late as December. Or
2. Pay one installment on the installment due date immediately following the event, enough to do the above.
Either of these will avoid a penalty.

If you divide the extra tax libility by the number of installment remaining and pay them as Phil suggests you will almost certainly overpay, and you will incur a penalty on earlier quarters depending on how much you overpay or and possibly later quarters if you underpay, and require completion of Schedule AI to possibly avoid even larger penalties.

Paying an estimate or estimates should be avoided in favor of overwithholding, but if paid must cover the tax liaibilty to date to be effective (not spread out through the remainder of the year), and then requires completion of Schedule AI and calculation of any penalty by the taxpayer to avoid further penalties.
"Tax liability to date" includes accumulative "safe harbors" amounts. Paying 4 equal and on time installments would be O.K. ( as good as withholding) but that only works if the event was in the first quarter. Ed

<< I beg to differ, ... >>

We don't differ at all. Thanks for taking the time to amplify on "if an estimated tax requirement arises" and the safe harbors.

Phil Marti