Quote:
Originally Posted by Rainger99
This is the first year that I have to pay estimated taxes.
99% of my income is social security, dividends, and capital gains.
I know what my social security will be but how do you estimate dividends and capital gains?
Last year, I think all of my capital gains came in the 4th quarter.
And am I supposed to pay in April for gains that don’t arrive until December? Does the IRS expect you to sell stock to come up with the money? How do you pay estimated taxes on income that you don’t have?
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Two methods.
Most complete but most difficult:
I receive statements each quarter reporting the dividends, interest, and capital gains. Use the reports that cover the period and the calculations from the IRS forms to calculate the tax. This should put you close to paying the correct amount of tax for the year.
Simplest but safest:
Use the 100% (110%) “safe harbor” rule. Take your total taxes due from last year, multiply by 110% if necessary, divide by four, and make payments of that amount. This may not be close to the amount you ultimately have to pay but should be sufficient to avoid penalties.
You need to make the timely, estimated tax payments. If that means selling stock then that’s what you’ll need to do. We have enough in deposit accounts and CDs to cover our payments but YMMV.