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estimated taxes 2020

Forum|Forum|5 years ago
December 10, 2020
2 replies
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If you have a long term capital gain from selling stock in 2020 that will cause you to owe a large amount of tax in April, can you avoid penalty and interest for both IRS and CA as long as you have paid at least 100% (or 110%) of your 2019 total tax no matter how large the gain is?

Is there any reason to pay the extra tax in 2020 rather than waiting until 2021?

Lacerte Tax

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Best answer by abctax55

Fed = yes/no

CA = maybe/maybe

Fed: As long as the 100/110% has been paid thru-out the year as required via timely estimates and/or withholding. You can't just make an estimated payment now/Jan 15, 2021 and have the penalties eliminated.

CA: Depends on the total income. California has this different rule IF the income for the year is over a million (that amount may have increased...check Form 5805); the 100/110% rule can't be used. And if the income is less than that, you still have to have paid in the 2020 amounts timely (estimates or withholding) just like the Federal

And paying the CA hit before the end of the year involves evaluating your client's specific situation after considering SALT limitations. And you should be aware of talk that SALT limits *MIGHT* be suspended for 2021.

Lot of moving parts to your OP.

sjrcpa

Level 15

There is no interest unless you pay after April 15, 2021.

Yes regarding the penalty for federal. I think it matters how large for CA. I'll defer to my colleagues that practice in CA.

The more I know the more I don’t know.

L

LSTAXAuthor

Level 5

Thank you!

abctax55Answer

Level 15

Fed = yes/no

CA = maybe/maybe

Fed: As long as the 100/110% has been paid thru-out the year as required via timely estimates and/or withholding. You can't just make an estimated payment now/Jan 15, 2021 and have the penalties eliminated.

CA: Depends on the total income. California has this different rule IF the income for the year is over a million (that amount may have increased...check Form 5805); the 100/110% rule can't be used. And if the income is less than that, you still have to have paid in the 2020 amounts timely (estimates or withholding) just like the Federal

And paying the CA hit before the end of the year involves evaluating your client's specific situation after considering SALT limitations. And you should be aware of talk that SALT limits *MIGHT* be suspended for 2021.

Lot of moving parts to your OP.

HumanKind... Be Both

L

LSTAXAuthor

Level 5

Thank you. For IRS, you are correct that 100 - 110% of the 2019 tax has to be spread out evenly to avoid penalty. Say that the 2019 total fed tax was $10,000 and they paid $2,500 each quarter but ended up owing another $80,000 would they be penalty and interest free? What if they paid the $10,000 on 1/15/2021 for quarter 4? Would they be penalized just on the $10,000 that should have been spread out or does the penalty factor in the $80,000?

abctax55

Level 15

The "extra" tax hit of $ 80,000 doesn't have to be paid until 4.15.2021

HumanKind... Be Both

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