Safe Harbor

You owe no penalty if you made timely payments of 100% of your 2012 tax, or 110% if your 2012 income was over $150K. Timely only matters for quarterly estimates; withholding is always considered timely.

You'll probably have to fill out form 2210 to show that you don't owe a penalty.

You will owe no penalty if you make timely payments of 90% of your

2014 tax. If your withholding will cover your tax, that's all you need. If you expect it to be more than your tax, you might consider adjusting it downwards so you don't give the government a free loan.

In addition to the other reply, note that the top long term capital gain tax rate this year is 20% (of you make more than 450k). Also because your income is very high, your social security income will almost certainly be 85% taxable.

Don't forget state tax. If you live in CA, they do not allow the use of prior year safe habor if you make more than $1M. In this case an estimated payment is required.

snipped-for-privacy@cox.net wrote: : We recently sold stock with a very large LT capital gain. This will create a one-year very significant spike in our income. In the previous few years we have consistently gotten refunds. Our withholding from pensions and social security for this year is a little more than our 2012 tax liability. When I file my 2013 tax, will I be safe from any penalty for underpayment? I know I'll owe a heck of a lot, but I've already planned for that. What about 2014? I anticipate that our income will go back to normal and our withholding will more than cover our tax liability, but should I still pay some estimated?

: Thanks for any help and advice.

: -- You should not be liable for a penalty if you have already, through withholding, paid more than yoru 2012 tax. As for next year 2014, you will owe what you woe, but your safety valve of paying at least 90% of your 2013 tax woudl be dmuch higher than what you are likely to owe. If you think you mihgt have a bit more regular income excluding that capital gain, you could pay a small amount of estimated tax to make sure, but not anything like the amount to cover that big year with the lovely big capital gain.

Wendy Baker