If their previous year's tax return had a refund then their withholdings covered 100% of the tax due. In that case no underpayment penalty will be applied if they should happen to have an underpayment this year due to selling $20K of stock. There's also no penalty if the net tax owed this year will be <$1K (you said their IRA withholdings are typical in excess such that they expect a refund rather than to owe taxes due).Thanks for the comments, that does help. The stock is probably over 80% gains but it’s a good reminder that it won’t all be taxed. They should be able to avoid the penalty but it doesnt sound bad even if they do have to pay it. .
See H&R Block topic on estimated tax payment safe harbor details.
Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. The IRS will not charge you an underpayment penalty if:
- You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or
- You owe less than $1,000 in tax after subtracting withholdings and credits
Statistics: Posted by bonesly — Tue Dec 17, 2024 11:51 am