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I recently sold an investment that earned a sizable (about $20K) short-term capital gain. I know that I'm going to owe income tax on this amount for the 2014 tax year, and although I don't know the exact amount I'll owe, I'd like to get it out of the way now. Is it possible to send the IRS a check now and say "please count this against my 2014 taxes." Almost like an additional withholding from my paycheck (except my current withholding on my W4 is already at 0 so I can't make it lower).

It would probably make more sense for me to simply deposit my estimate for the capital gain tax bill in a separate account and not touch it, to make sure I have enough to pay it when the time comes to file my 2014 taxes. That way I could at least earn a little interest. However I'm just wondering if it's even possible to file an estimate of taxes like this super early for the next tax year, before the current tax year is even over.

Some details: I work a salaried job, I'm single, living in a state that doesn't have state capital gains tax. Since I'm not self-employed I don't think I can just increase my quarterly taxes, so I don't see any other way of "paying early" by decreasing my withholdings for a few periods or increasing my estimated taxes.

  • Are you certain you wont have any losses to offset some of this gain? – JoeTaxpayer Jan 18 '14 at 13:04
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    To be exact the tax year '13 ended Dec 31 '13 for calender-year filers (which nearly all individuals are); the filing season for '13 ran until Apr 15 '14, or Oct 15 for extenders. A few transactions can be done after Dec 31 but still count in the tax year, like IRA contributions (if designated). – dave_thompson_085 Aug 9 '17 at 11:40
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Yes, it is, but first let me address this sentence:

my current withholding on my W4 is already at 0 so I can't make it lower

You definitely can make it lower. On W4, in addition to the allowances (that what you meant by "already at 0"), there's also a line called "additional withholding". There, you put the dollar amount that you want your payroll to withhold from your paycheck each pay period.

So the easiest way to "send" a one time payment to the IRS, if you're a W2 employee, would be to adjust that line with the amount you want to send, and change it back to 0 next pay period.

You can also send a check directly to the IRS - follow the instructions to form 1040-ES. That is exactly what that form is designed to be used for.

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    If the OP is in the 25% tax bracket (say) and needs to have an additional $5K withheld from a single paycheck, he would need to have take-home pay of at least $5K$ per paycheck to cover a one-time withholding. More to the point, if the OP has the 5K withheld in equal installments between now and the last paycheck of 2014, it will have the same effect, and will not disrupt the cash flow the way a single $5K excess withholding will do. – Dilip Sarwate Jan 18 '14 at 3:12
  • @Dilip agreed. Generally, you can adjust W4 during the year several times, so that the bottom line your tax withheld would be the tax due throughout the year, and that's the best way to do it – littleadv Jan 18 '14 at 5:38
  • @DilipSarwate yes, I see that now. Guess I need some glasses or something :P – stannius Sep 20 '18 at 15:38
  • You can't make withholding lower than zero (the IRS will not make estimated advance payments on a predicted refund). You're correctly explaining that what OP has is zero allowances, but never really pointed out that withholding is being made higher / the inverse relationship between allowances and withholding. – Ben Voigt Mar 15 at 16:47
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The advice is always to not get a big refund from the IRS, because that is giving them an interest free loan. You actually have an opportunity to get an interest free loan from them.

When you file your taxes for 2013 note how much you paid in taxes. Not the check you had to send in with your tax form or the refund you received, but the total amount in taxes you paid. Multiply that amount by 1.1 or (110%). For example $8,000 * 1.10 = $8,800.

When you get your paychecks in 2014 you goal is to make sure that your federal taxes (not state, Social security or medicare) taken from your paycheck will get you over that number $8,800 /26 or ~350 a paycheck. Keep in mind that the later you start the more each check needs to be.

You will owe them a big check in April 2015. But because of the 110% rule you will not owe interest, penalties, or have to deal with quarterly taxes. The 110% rule exempts you from these if you end them 110% as much a you paid in taxes the previous year.

Note that no matter how you pay your taxes for 2014: big check now, extra per paycheck, or minimum now; you will have to watch your withholding during 2015 because the 110% rule won't protect you.

  • Isn't it the 100% rule? – Craig W Jan 19 '14 at 21:57
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    The rule is: The total of your withholding and estimated tax payments was at least as much as your 2012 tax (or 110% of your 2012 tax if your AGI was more than $150,000, $75,000 if your 2013 filing status is married filing separately) and you paid all required estimated tax payments on time. If you know the 100% rule will count use it, In the few years I have used it I just tried for 110% just to make sure. – mhoran_psprep Jan 19 '14 at 23:23

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