I had a large capital gain in 2024 and already paid the estimated taxes for it. But now I’m wondering about my estimated taxes for 2025. Do I really need to pay the same amount in estimated taxes as I did in 2024 even though this was a one-time thing? My capital gains will be back to the usual amount next year.
I’m having trouble finding a clear answer. Can anyone help?
You can use another option for safe harbor, like paying at least 90% of the actual tax owed for the year.
Brian said:
You can use another option for safe harbor, like paying at least 90% of the actual tax owed for the year.
I usually stick to the 90% rule every year. It’s frustrating though, because I end up paying two years of taxes on a big gain and then getting a big refund the third year. This really messes up my investment strategy.
@Mai
I think you might be misunderstanding. You don’t need to overpay. Just estimate your 2025 tax liability and pay that amount. Nothing extra.
Brian said:
@Mai
I think you might be misunderstanding. You don’t need to overpay. Just estimate your 2025 tax liability and pay that amount. Nothing extra.
For 2025, the estimated payments are based on 90-110% of 2024’s taxes. So, I pay a lot in 2024, then again in 2025, and get a big refund for 2025. I don’t want to pay a large estimated amount again in 2025.
@Mai
No, you don’t need to use 2024 income to calculate 2025 payments.
That’s exactly my point.
Instead, use the option to base your payments on only 2025 income. Forget 2024 entirely.
Brian said:
@Mai
No, you don’t need to use 2024 income to calculate 2025 payments.
That’s exactly my point.
Instead, use the option to base your payments on only 2025 income. Forget 2024 entirely.
Got it! That’s what I was hoping. Just didn’t want to upset Uncle Sam.
@Mai
>For 2025, estimated payments are based on 90-110% of 2024’s taxes
That’s not correct.
For 2025, you can choose to base payments on either:
Mai said:
@Lior
*So it’s 90% of 2025 tax liability even if AGI is over $150k?
Yes, always 90% of the current year’s (2025 for 2025 taxes) tax liability.
Mai said:
@Lior
*So it’s 90% of 2025 tax liability even if AGI is over $150k?
Yes, always 90% of the current year’s (2025 for 2025 taxes) tax liability.
Thank you!
@Mai
You’re missing the part of the safe harbor rule where you owe less than $1,000 after estimated payments.
True said:
@Mai
You’re missing the part of the safe harbor rule where you owe less than $1,000 after estimated payments.
Good reminder. Thanks.
True said:
@Mai
You’re missing the part of the safe harbor rule where you owe less than $1,000 after estimated payments.
> owe less than $1,000 after your estimated payments withholding.
That rule is specific to withholding, not estimated tax payments.
Stevie said:
@Payne
It does apply if payments were made in equal amounts on time.
No, it doesn’t. The 90% safe harbor applies to both withholding and timely estimated payments, but the $1,000 limit applies only to withholding. Check the 1040-ES instructions and form 2210 for details.
@Mai
Sounds like you’ve been using the 100/110% safe harbor from prior year’s tax, not the 90% of current year’s tax liability.
u/Its-a-write-off is suggesting you go with the 90% rule for 2025.
Lior said:
@Mai
Sounds like you’ve been using the 100/110% safe harbor from prior year’s tax, not the 90% of current year’s tax liability.
u/Its-a-write-off is suggesting you go with the 90% rule for 2025.
That’s what I thought!
You don’t have to match your 2024 taxes with estimated taxes for 2025 if your income isn’t going to be the same. For 2025, you’re fine as long as you pay 90% of what you’ll owe that year. No need to match 100% or 110% from the year before.
https://www.investopedia.com/terms/u/underpaymentpenalty.asp
Check the rule on AGI over $150k, but as long as you’re paying 90% in 2025, you should be good.