Estimated Tax Question on Sale of Stock?

Question

My wife and I made a 25,000 on a sale of Stock in 2006. We do not aniticipate another capital gain like this in 2007. Do we need to pay estimated taxes for 2007?

Answer 1

If you had a $25,000 capital gain in 2006 - then you must pay that on your 2006 taxes (due last Tuesday). The only question is if that capital gain was long-term or short-term. If you purchased the stock more than a year from the time you sold it, you get a special tax rate. Google 2006 federal capital gains tax for more information.

There is no reason to pay 2007 taxes now until April 15th of 2008. However, capital gains incurred in 2006 were already due.

Answer 2

Let's talk about Federal income tax only--your state may have similar requirements, but different thresholds. The only reason you might want to consider paying installments of 2007 estimated tax sufficient to cover the 2006 tax you incurred on the 2006 stock sale is to ensure that you will not be subject to a penalty for underpayment of estimated tax. This is what is referred as Exception 1 to the imposition of an underpayment penalty. As long as you have paid timely, through withholding or estimated taxes, an amount at least equal to (100%) your prior year's tax, you cannot be assessed a penalty for underpaying your estimated tax for the current year. This percentage goes to 110% if your Adjusted Gross Income is over a certain level, depending on your filing status.

That being said, there are other exceptions to avoid penalty. One of them is that if you have paid timely for 2007, at least 90% of your 2007 Federal income tax liability, you cannot be assessed an underpayment penalty. So, if you can predict that your taxable income absolutely will not include any amount equivalent to the 2006 gain on sale of stock, but instead will be substantially like the prior year without such gain, you may choose not to pay estimated taxes such that you would have paid in at least as much as the 2006 tax. Just be sure you, as you go through the year 2007, that your tax paid by the installment due dates, equals the amount necessary to meet an exception of your choosing. Refer to IRS Publication 505 at this link:

http://www.irs.gov/pub/irs-pdf/p505.pdf

These rules are discussed on page 47 under the topic "No penalty" and on page 48 under "General Rule."

Answer 3

No. You should back your estimated taxes on either 100% of your current years tax or 90% of your 2007 income tax liability to avoid underpayment penalties. If you normally get a refund using your withholding, then I would not make any est. payments. If you do sell more stock, then it would be prudent to make a payment to avoid penalties.

Answer 4

No. Estimated tax payments are for expected income the next tax year. If you do pay some estimated tax, make sure you claim it on next years tax return. If you needed it, you've already paid. If you don't, you gave the government an interest free loan, but you get your money back.

Answer 5

You probably don't need to.

When you sold the stock, did you have the broker withhold taxes? I'm guessing you didn't, and you now owe, and you're computer software is bringing up the idea of estimated taxes.

Answer 6

Why might you be paying envisioned quarterly taxes while you're interior the 25% bracket? i'm no longer an accountant, yet that seems unusual. pass back to annual, in case you are able to. lots less demanding. in actuality, i'm meant to pay quarterly, even nevertheless it makes extra experience for me (in terms of money pass) to pay each year and take the penalty each and every 12 months. As on your question, an accountant will might desire to chime in...

Answer 7

Not unless you expect to owe more than you're having withheld. Each year's estimated payments should be based on the estimated income for THAT year.