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OK. So I need to dig out a voucher, write a check for 15% of my gains this year, and hopefully it will good? (all were long-term gains)

Yes, but if you got a refund last year, that can imply your withholding had some surplus, which can reduce the size of that check.

Best is to do a spreadsheet to see how your other income this year will compare with last year and estimate your refund this year based on this years numbers. Then adjust that 15% accordingly.
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Do I just dig out a quarterly coupon and send it in with a check?

Yep.

Then when you file your taxes for 2019, be sure to look at the Annualized Installment method of calculating the underpayment penalty. That may eliminate any underpayment penalty - at least it should minimize it.

--Peter
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Withholding is considered evenly contributed during the year. Estimated tax payments aren't. A possible option would be to increase withholding to cover a federal and if appropriate state taxes.

(I have to take an RMD on an inherited IRA. 99% of the RMD was allocated to federal and state withholding.)
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If you file estimated taxes (or increase your withholding) to cover the unexpected income during the quarter you received the income, you should be ok.
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I'm concerned that this is going to necessitate an estimated tax payment I had not anticipated last April. Is there any special procedure to accomplish this now and avoid some (or all) of the penalty?

I agree with the solutions that have already been given to you. That said, I would point out that if you would otherwise meet a safe harbor, like paying 100% of 2018's tax liability (110% for income > $150k) in withholding and/or estimated tax payments for 2019, there won't be a penalty, even if you don't make an estimated tax payment.

AJ
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We pay our estimated taxes and any due when filing through the federal electronic system
https://www.eftps.gov/eftps/

If you use this you won't need to dig out a quarterly coupon or worry that an amount pre-printed on the coupon does not match your check.
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We've been paying our estimated taxes through the eftps site for about 10 years. We wouldn't want to go back to paying by check.
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in withholding and/or estimated tax payments for 2019, there won't be a penalty,

True for withholding. The estimated tax payments must be made on time to avoid an underpayment penalty.
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The estimated tax payments must be made on time to avoid an underpayment penalty.

And "on time" can be calculated using the annualized income method, which is specifically to keep from penalizing people when their income is "lumpy" - not coming in relatively evenly through the year.

--Peter
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True for withholding. The estimated tax payments must be made on time to avoid an underpayment penalty.

I was just trying (obviously, unsuccessfully) to make the point that if the OP was already going to meet a safe harbor through withholding and/or expected estimated quarterly payments (since the OP referred to this one as an estimated tax payment I had not anticipated), that there is no need to make an estimated tax payment just to avoid a penalty. By meeting a safe harbor, penalties will be avoided as long as any additional tax due is paid on or before April 15, 2020.

AJ
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I've used the annualized method to avoid penalty but in recent years I've taken a different tack. I figure my safe harbor based on previous year's tax bill. Then I set the first three estimated to meet that safe harbor. If my income rises unexpectedly I can still make a fourth quarter estimated payment in January. But since I have home and car insurance plus Xmas and some charitable contributions to make in the fourth quarter I'm happy if I've gotten all the estimated tax paid and can skip the fourth payment. The extra cash can then go towards a little extra at Christmas or a trip somewhere warm in January.
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OK. So I need to dig out a voucher, write a check for 15% of my gains this year, and hopefully it will good? (all were long-term gains)

I actually increased my 401K this year, so I might actually have less tax this year than last. Oops again.
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AJ - I don't make estimated payments normally. So having to make one was "not anticipated". I think only once or twice in 25 years have I had an issue with this. This year could make three times, and this year the amount is significant (in the past I think I owed penalties less than $50 on the rare occasions I hit it).

The stocks all triggered their stops within about three weeks last month. So it all appeared in one quarter.

I'm not familiar with the "annualized method", so I will have to do some research.

Appreciate the input.
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I don't make estimated payments normally. So having to make one was "not anticipated". I think only once or twice in 25 years have I had an issue with this. This year could make three times, and this year the amount is significant (in the past I think I owed penalties less than $50 on the rare occasions I hit it).

Base on this answer, and the answer that you increased your 401(k) contribution this year, so you might have less tax withheld this year than last, it sounds like you're still working and having taxes withheld from your paycheck.

If that's the case, I would suggest that the simplest answer would probably be sure that you will have enough withheld from your paycheck to meet the safe harbor of withholding at least 100% of your 2018 tax liability (110% if your AGI is more than $150k). You can get your 2018 tax liability from line 15 of your 2018 Form 1040. Then, assuming your last paystub wasn't for a bonus or other irregular payment, check it for the amount withheld YTD, and the amount withheld from this paycheck. If the taxes that were withheld from that check are continued at the same rate for the rest of your paychecks, will you meet the safe harbor? If, so then you don't need to make any estimated tax payments - but you should be sure to have the money to pay the taxes in April.

If you won't meet the safe harbor, then you can fill out a new W-4 to have enough additional taxes to meet the safe harbor withheld.

Note: If you typically get a refund, then you are likely to already have enough being withheld to meet the safe harbor - but with all of the changes to tax laws the last couple of years, it's best to check if you are concerned you're going to going to be owe a lot of taxes for this year.

I'm not familiar with the "annualized method", so I will have to do some research.

The beauty of doing the withholding through your paycheck is that there are no timing issues with withholding - it's considered to have come in 'in sync' with your income, even if you have extra taxes withheld only a few months of the year.

The 'annualized method' is only required if you've made unequal estimated tax payments throughout the year. If you only make one estimated tax payment in a year, then, by definition, the payments throughout the year are unequal. You can read about the 'annualized method' in the instructions for form 2210.

AJ
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OK. So I need to dig out a voucher, write a check for 15% of my gains this year, and hopefully it will good? (all were long-term gains)

Yes, but if you got a refund last year, that can imply your withholding had some surplus, which can reduce the size of that check.

Best is to do a spreadsheet to see how your other income this year will compare with last year and estimate your refund this year based on this years numbers. Then adjust that 15% accordingly.
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Best is to do a spreadsheet to see how your other income this year will compare with last year and estimate your refund this year based on this years numbers. Then adjust that 15% accordingly.

Actually, it's easier to just meet a safe harbor, and be prepared to pay any taxes owed by April 15 of 2020.

AJ
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Actually, it's easier to just meet a safe harbor, and be prepared to pay any taxes owed by April 15 of 2020.

While calculating a safe harbor is pretty easy, it's not always the right way to go. It works well when your income is rising from the prior year to the current year. But when your income falls, the safe harbors generally have you paying in too much in taxes.

Perhaps in 2018 you changed jobs. You might have received a payout of unused vacation pay from the former employer. And let's say you got a signing bonus from the new employer. So you've got two sources of one-time income.

Now for 2019, you have a full year with your current employer. That could easily leave you with a lower income than 2018. Add in a stock sale and for 2019 and you might be better off making a payment based on the annualized income method rather than trying to meet a safe harbor based on the prior year tax.

Another common way would be to retire near the end of 2018. For 2019, your income is down significantly because you're not working. Same thing happens if you are unemployed for several months in 2019. You might not want to use a safe harbor if that involves paying in significantly more taxes than you will eventually owe. That's when making a good estimate of your taxes becomes important.

--Peter
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Actually, it's easier to just meet a safe harbor, and be prepared to pay any taxes owed by April 15 of 2020.

Exactly! After filing taxes, I adjust withholding (from pension) to the tax liability amount plus $50 for good measure.

George
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While calculating a safe harbor is pretty easy, it's not always the right way to go. It works well when your income is rising from the prior year to the current year. But when your income falls, the safe harbors generally have you paying in too much in taxes.

In this case, since the OP was worried about owing extra taxes from realizing significant capital gains, and indicated that their income from employment was similar, maybe slightly less than 2017 because they increased their 401(k) contribution, it probably is the way to go.

AJ
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We owed taxes last year. There was a small penalty, but not much so I didn't worry about it. Looking at how much tax we owed last year versus what has been withheld so far this year we're on track to miss the 110% figure by a bit over 20%.

Employment has been steady. We have about 7 pay periods left this year. I could adjust the withhold to cover that which would result in about a 1/3 reduction in take-home. Or I could send a check to the IRS from the proceeds of the stock sales. I do like the safe harbor idea, but given these details is that still the best way to go?

1poorguy
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I could adjust the withhold to cover that which would result in about a 1/3 reduction in take-home. Or I could send a check to the IRS from the proceeds of the stock sales. I do like the safe harbor idea, but given these details is that still the best way to go?

Meeting a safe harbor eliminates underpayment penalty. It is a good option.

If you send a check to the IRS, you will need to do an additional form with your taxes. If you adjust withholding, you don't. The choice is yours.
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The choice is yours.

Of course. I went and looked at 2210, which after a bit sent me to pub 505. It's rather confusing. But as near as I can tell I need to complete worksheet 2-7 to see if I can annualize. They don't really explain how to do it, just point to the worksheet.

The W4 is clearly easier...just input a value on line 6 that will cover the shortfall this year, and be done. If I overdo it a bit that's fine, it either reduces the check I have to write in April or gets me a refund. Then I'll need to adjust again in January based on numbers this year so the withhold next year is more appropriate.

https://www.irs.gov/pub/irs-pdf/i2210.pdf
https://www.irs.gov/pub/irs-pdf/p505.pdf

1poorguy
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