My spouse has a significant number of vested RSUs from him employer. We've decided to sell a large tranche to diversify our holdings, which will result in a large amount of LT capital gains (prefer not to share amount because we have already gotten pro advice on that and have decided what we are selling). I know that there are no withholding on capital gains, so I'm trying to figure out the best way to avoid penalties.
-
I know about the safe harbor where you avoid penalty if you pay 110% of your prior year tax liability. We are anticipating significantly higher income this year compared to last, does that matter? As long as we pay 110% of last year's tax bill via W2 withholding then we will be fine? (Obviously in this case we will set aside funds for the larger tax bill next spring).
-
Does it make sense to do an estimated payment for this quarter? Why or why not? If we do an estimated payment can we just do it for the capital gains tx this quarter, and no other income or quarters? 95%+ of our other income is regular W2 with withholding.
Large CG transaction and avoiding underpayment penalty/interest
byu/noamfromm intax
Posted by noamfromm
2 Comments
if those RSUs vested, they had income pickup for the fair market value, so the gains aren’t as bad as you think
Don’t make estimated tax payments. Increase your withholding (if needed) to be sure that you reach the 110% threshold. That will completely avoid any underpayment penalty.