From: hcy@cbnewsh.cb.att.com (hon-chi.yu)
Subject: Re: It's that time of the year: a question on unexpected capital gain
Organization: AT&T
Distribution: usa
Date: Mon, 28 Dec 1992 21:37:01 GMT

In article <1992Dec28.195612.18526@cbnews.cb.att.com> ask@cbnews.cb.att.com (Arthur S. Kamlet) writes:
>In article <1992Dec28.192555.16571@cbnewsh.cb.att.com> hcy@cbnewsh.cb.att.com (hon-chi.yu) writes:
>>        I have a tax question regarding estimated tax payment penalty,
>>and I appreciate anybody's answers to verify my understandings:
>>
>>If somebody has a significant capital gain (say, from stocks transaction,
>>and significant compared to the salary) incurred during a year, and that
>>person only made an estimated tax payment before January 15 of the following
>>year (the 4th quarterly payment due date), which, when added to the regular
>>withholding from salary, should satisfy the >90% of final tax due requirement,
>>will that person still be liable to under-estimated tax penalty when April 15
>>comes?  What if the capital gain incurred during the first half of the year?
>
>I assume you understand the rules about how much witholding+estimated
>payemnts you need to have.
>
>Then you ask if you can make up the payments all in the 4th quarter
>payment.  The answer is it's better to make a big payment then than
>to make no payment at all.
>
>But unless the windfall was in the 4th quarter, you may be subject
>to a penalty.  In any case, you would need to fill out a Form 2210
>to calculate the penalty, if any.  This form also allows you to
>show your income and tax payments by quarter, so windfalls at the
>end of the year can be paid for at the end of the year.
>
>If you prefer the IRS will be more than happy [  :^(   ]  to fill
>this form out for you, even if you don't ask them to.  If so, they
>will assume your income was equally received during the year.
>
>>To be fair, I would think that a tax payer needs not pay the tax on the
>>unexpected capital gain on stock until the end of the year when s/he knows for
>>sure the final gain/loss, but my reading of the tax document suggest otherwise,
>
>If you know you have an unexpected capital gain early in the year
>you could make an estimated payment at that time.
>

My biggest concern is that I might have a big capital gain in the early
part of a year, but an even much bigger capital loss later in the year
so I would end up having vastly overpaid IRS in tax withholding but in
fact I would have a big capital loss!  Adjusting the regular salary withholding
might not give you enough time to make up for that overpayment.  I do not
suppose IRS will pay back the overpayment until much later after you
fill out the tax return, right?
So, if I interpret this correctly, the IRS really encourages people to sell
the stocks as later as possible in the year in order not having to pay any
penalty or overpayment of tax?

>By the way, is it even necessary to point out that "fair" and "taxes"
>are never used together?
>

I guess not. :-)

>
>Follow the rules - pay at least as much as you need to, and don't
>wait until the end of the year.

This rule seems to be a one-way street--always favoring the IRS. 

>-- 
>Art Kamlet  a_s_kamlet@att.com  AT&T Bell Laboratories, Columbus

Thanks for answers.