Avoiding Penalties On Stock Sales

I plug all my numbers into a tax software program (I use Turbotax but there are others) by December 15. It tells me how much I owe and what the penalty or lack there of will be. This gives me a chance to sell some of my losers to offset the gains before the end of the year. It will also give me an idea of what I need to pay by Jan 15 to avoid any penalty.

First, try to take advantage of prior year safe harbor. (a) What was the total tax on your 2009 return? (b) What is the total tax paid through withholding on your 2010 return minus credits you expect to take (such as first time homebuyer credit, dependent care credit, education credits)? (c) Was your 2009 income more than 150,000? (d) Are you a farmer/fisherman, (e) do you own a small business (less than

If the answers are (c) yes, (d) no, (e) no, and (b) is greater than or equal to 110% of (a) then there is no interest and penalty if you pay by April/15/2010. If (b) is less than (a) by $1, there is a penalty, but it is based on $1.

If the answers are (c) no, (d) no, (e) no, and (b) is greater than or equal to (a) then there is no interest and penalty if you pay by April/

As for state tax, many (if not all states) follow the same rules as federal. That is, they have a prior year safe harbor provision. However, in CA, if your current year AGI is over $1 million then you cannot take advantage of prior year safe harbor.