I am a US citizen employed in the US. I have recently been making quite a bit of money (knock on wood) in the stock market. In previous years, most of my money has been coming in from my salary, which has taxes deducted appropriately before it reaches my bank account. With money I am making in the stock market, there is no immediate tax. I expect to pay tax on it on tax day in 2021. My question is, what is the most effective way to 'save' money for these taxes? I could set aside some in cash, but I feel that I am then losing the gains on this. Should I be putting it in the market, and then selling securities to pay for the tax at tax time? I feel like this has some inherent risk involved as I may be forced to sell in a down market to cover the liability. These considerations make it sounds somewhat parallel to having a downpayment for a house, which lends me to believe I should be doing the former. However, I have been told by others that this is a waste of money. What is the most cost effective way to handle this?

Edit: These are gains made directly from selling of securities that have been held for less than one year (and are therefore taxed as income) in a standard brokerage account (ie not tax-advantaged).

  • 1
    Are any of these investments in a 401(k) or IRA? Are these profits because you have sold the investments or are they paper gains? Commented Jun 13, 2020 at 11:15
  • No these are in a regular brokerage from sold securities.
    – Runeaway3
    Commented Jun 13, 2020 at 16:50
  • I am not sure why your question was down voted. Commented Jun 14, 2020 at 4:24

2 Answers 2


This answer is with regard to a brokerage account assuming you have realized gains (not paper/unrealized gains). I suppose you still work in a regular job. Or do you not? If you do, you have a regular cash flow part of which you can use to pay taxes when you they become due. If you don't, it might not be a great idea to invest everything you have in the market. For example, if the market tanks when you are due to pay taxes for a given tax year and you don't have any spare cash, you might have to liquidate some of your holdings at a loss to cover the taxes due unless you are ready to delay paying your taxes at a certain rate of interest. But this could be risky unless the market picks up again and returns more than what you would pay out in interest. There are always some scenarios in which you will do better if you are fully invested, and others in which you will do worse. What you eventually do depends on what your risk appetite is.

As for me, I would definitely set aside some money to cover at least part of future liabilities or ensure that I have a steady cash flow to cover them.


If personal federal taxes are estimated at 100% to 110% of the previous year and quarterly payments are made, then there is no tax penalty regardless of how much tax is actually owed.

Tax withholding is required from salary and quarterly tax payments are expected for investment income or gain.

Then the quarterly tax payments should make the budgeting more obvious.

  • It is kind of hard to arrange for zero income tax withholding from wages unless one is prepared to make fraudulently false claims on the W-4 form submitted to one's employer. That is, one cannot say "Hey boss, don't withhold income taxes from my wages, ok?" and have the boss comply. Commented Jun 13, 2020 at 1:35
  • Tax withholding is required from salary and quarterly tax payments are expected for investment income or gain.
    – S Spring
    Commented Jun 13, 2020 at 7:42
  • "Tax withholding is required from salary and quarterly tax payments are expected for investment income or gain", So you say in your edited answer. Your original answer advised the OP to arrange for no tax withholding from salary and make estimated tax payment to cover both the tax on salary as well as investment income. In fact, it is generally possible to arrange for additional tax withholding from salary so as to meet the 100% to 110% of last year's tax escape clause and to avoid the need to make quarterly payments of estimated tax as well as penalties completely. Commented Jun 13, 2020 at 14:23
  • If the employer is asked regularly to adjust the employee tax withholding because of an employee investing activity, hopefully the employer will not think that the employee is trading from the workplace.
    – S Spring
    Commented Jun 13, 2020 at 14:54
  • Nonsense. One knows what P, the previous year's tax due, is by April 15 generally, One knows what the current withholding amount is and can thus calculate W, the total tax that will be withheld by the end of the year. One only needs to ask the employer to withhold an additional fixed amount (P-W)/N amount or (1.1P-W)/N amount from the remaining N paychecks still to come so that a total of P (or 1.1P for high earners) is withheld for the entire year, eliminating the need for quarterly payments of estimated tax and penalties for failing to pay enough estimated tax during the year. Commented Jun 13, 2020 at 15:10

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