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My wife and I are trying to buy our first home and sold an index mutual fund with about 60k in capital gains.

This is my first time reading form 1040-ES, but it seems that it is made for an individual without withholding rather than an individual with withholding and one or more windfall gains.

Do we need to pay the entirety of the capital gains tax (about 9k) before June 15th? Or could I use losses later in the year to entirely offset this gain? If the market drops appreciably, then I could offset all/some of this gain. Is there software that can make this process easier?

I found this question on this topic, but it addresses more the existence of estimated taxes rather than the timing.

FWIW, neither of our income is large enough to handle this tax bill with a W-4 adjustment. We will both be unemployed in about one month and I'll be starting a new job in the fall, although our total income this year will be about the same relative to last year (ignoring the capital gains). We file jointly.

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    I trust that you have accounted for all the dividends and capital gains distributions that were reinvested in the fund over the many years? If not, that $60k gain might be somewhat (or considerably) smaller. Also, some of the gains might be short-term capital gains (from shares acquired by reinvestment of year-end distributions in December 2014).
    – Dilip Sarwate
    Commented May 6, 2015 at 11:17
  • @DilipSarwate, yes, thanks! Some portion will be short-term. But I am confused about how to pay the tax (given that it could be reversed) and avoid the underpayment penalty, not how to determine the rate.
    – Richard Herron
    Commented May 6, 2015 at 15:36

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No. You don't need to pay that by June 15th.

If you have stocks that are in a negative position, and sell before year end, you can negate the gain, partially or in full.

From a Forbes article by my friend, Jim Blankenship -

Understanding the Underpayment Penalty When you calculate the amount of tax that you owe, after you’ve subtracted however much you had withheld or paid in estimated tax throughout the year, if you haven’t paid in enough tax, the IRS will assess a penalty for underpayment. This penalty is based upon the lesser of two amounts:

  • 90% of the amount of tax you will pay in total for the year; or
  • 100% of the amount of tax you paid for the previous year.

In other words, a windfall does not always force you to pay a penalty.

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    I have personally done this. I converted a tax-deferred traditional IRA to a Roth IRA one year which triggered a well above average tax bill. But, I made sure to have withheld 100% of my previous year's total tax liability. No penalty was due the following April even though I owed a large tax payment. Of course, make sure you have the money to pay the tax by then! If you don't pay the amount due by April, you will get charged penalty and interest.
    – stannius
    Commented May 6, 2015 at 15:36
  • Thanks, Joe! I had to read this a few times, but I agree that I'm safe as long as I withhold as much taxes as last year.
    – Richard Herron
    Commented May 6, 2015 at 15:52
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    Thanks, @stannius! For me your comment above is a much clearer way to state the safe harbor provision. Thanks!
    – Richard Herron
    Commented May 6, 2015 at 15:52

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