Question

Pay estimated taxes on stock sales?

Forum|Forum|5 years ago
August 24, 2020
1 reply
0 views

This year I have not earned income reported on a W2 where taxes are automatically withheld, but I've sold ~$130K in RSU stock from a previous employer. I've calculated the cost basis for those sales and the taxable profit is ~$95k. They are all long term sales so I calculated the taxes owed on that to be about $14k (95 * 0.15). Is that calculation correct?

There are other complications to my taxes and I know they can affect the overall total due, but if I wanted to just get ahead of that $14k due and avoid any penalties should I pay estimated taxes on that $14k? I'm ok over paying a little to avoid a huge bill next April.

T

TomYoung

Employee

"They are all long term sales so I calculated the taxes owed on that to be about $14k (95 * 0.15). Is that calculation correct?"

Focusing only on federal taxes, (you might also owe state taxes too), that calculation should be ample. Long term capital gains are first taxed at a 0% rate up to a certain amount - depending on your filing status - and then the 15% rate kicks in. The thresholds for the 0% rate are $40K if filing as single and $80K if married filing jointly. (There are other thresholds for other filing statuses.) You may be "OK" with overpaying your taxes but if your status is married filing jointly that's a big over payment. Also you can spread out the estimated tax payment over the two payment dates left in 2020; there's no real point to making an interest-free loan to Uncle Sam.

When you do your 2020 taxes TurboTax might initially tell you that you have an underpayment penalty. That's because the default calculation of the penalty assumes that income is received evenly throughout the year and you've "missed" the first two estimated tax payment dates. In that case you'd want to "annualize" your income, (show the income in the quarter when it was actually received), eliminating the penalty for the first two quarters of the year. TurboTax has an interview for the process of annualizing.