IRS Penalty for not withholding enough?

Question

If I sell stock later this year and realize a large capital gain. Will I have to pay the IRS penalty for not withholding enough during the year to account for this? I could hold until the beginning of next year to sell but the stock price could fall a lot due to the financial climate we are in.

Answer 1

As long as you are under $1,000 in taxes owed to the IRS there will be no underpayment penalty. Also, the IRS says that if you have paid either 90% of current year tax, or 100% (110% if high income person) of prior year tax that there will also be no underpayment penalty.

Answer 2

Sell it, and make an estimated payment for the tax - the next quarterly estimated payment due date is January 15.

If your total withholding for this year is at least 100% of your total tax liability on your 2006 return, or if your total tax owed on your 2007 return is under $1000, you won't pay a penalty for underwithholding even if you don't make the estimated payment.

Answer 3

There is a penalty if the amount that you owe (in other words, your total tax minus your withholdings) exceeds $1000 and exceeds 10% of this year's tax and your withholdings are less than last year's tax.

You best option is to increase the amount being withhold from your pay be enough so that the total withheld during this year is at least as much as either (a) last year's total tax was, (b) $1000 less than this year's tax, or (c) 90% of this year's tax, whichever is least.

Answer 4

Yes, if the gain is substantial, it could result in a penalty.

You should make an additional estimated tax payment when you sell the stock to avoid the penalty at the end of the year. About 30% of the gain is a good rule. You'll get back overpayment, if any, when you file your taxes.

Answer 5

No. When you have extra income in the 4th quarter, then you pay before January 15, 2008.

Here is the general rule that should help you:
You must pay estimated tax for 2007 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2007 after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of:
* 90% of the tax to be shown on your 2007 tax return, or
* 100% of the tax shown on your 2006 tax return. Your 2006 tax return must cover all 12 months. (or 110% of your 2006 tax return if your gross income in 2007 is over $150,000.)

Thus if you make total estimated tax payments equal to (or 110%) your tax on previous year return, then you don't need to make any further estimated tax payments.

Answer 6

You could get a penalty if your withholding does not at least cover 100% (110% if income over $150k) of your last years liability or 90% of this year.

Since you know what your liability was for last year already, that is the easiest one to shoot for.

For example, if your tax liability was $20,000 last year, as long as you have withheld $22,000 (110% of $20k), you could owe as much as you would like and not have to pay a penalty.

Answer 7

Well, there you go. The Republicans made sure that little tidbit was in there. If you owe taxes, and don't add on the penalty yourself, they would be hard pressed to collect it. However, I believe they can take it out of future years. However, it is health insurance. The qualifying part makes sure it contains certain provisions. This prevents someone from offering a health insurance plan that only consists of a bottle of aspirin and a box of band-aids. Let's face it, you will eventually need it.

Answer 8

you should not as long as you pay them by April 14 2008

Answer 9

No, you would just complete a form (D) (i think) and list your capital gains.