Estimated Tax > Large Gains, Lump-sum Distributions, etc.

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Frequently Asked Tax Questions

Estimated Tax - Large Gains, Lump-sum Distributions, etc.

If I anticipate a sizable capital gain on the sale of an investment during the year, do I need to make a quarterly estimated tax payment during the tax year?

Rev. date: 1/1/2011

Capital Gains and Losses

Estimated Tax

Estimated Tax for Individuals

Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)

Tax Withholding and Estimated Tax

You must pay estimated tax for the current tax year if both of the following apply:

You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
You expect your withholding and credits to be less than the smaller of:
- 90% of the tax to be shown on your current year tax return, or
- 100% of the tax shown on your prior year’s tax return.* (Your prior year’s tax return must cover all 12 months.)

*NOTE: Certain taxpayers with higher adjusted gross income must substitute 110% for 100%. Also, certain qualified small business taxpayers may substitute 90% for 100% for any tax period beginning in 2009.

If you are making estimated tax payments you can:

Increase your quarterly estimated tax payments or
Increase your Federal income tax withholding to cover the tax liability. If you have the proper amount withheld you:
- May not be required to make estimated tax payments, and
- May not have to file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts, with your tax return as you would if you just increased the remaining estimated tax payments.

You may be able to annualize your income and:

Make increased estimated tax payments in the later quarters,
You would have to file Form 2210 with your tax return because we do not know when you received the income and that you received it unevenly over the year.

NOTE: Publication 505, Tax Withholding and Estimated Tax, has a Qualified Dividend and Capital Gains Worksheet to help estimate the additional tax liability.

Additional Information

Publication 505 Tax Withholding and Estimated Tax Form 1040-ES (PDF) Estimated Tax for Individuals Tax Topic 306 Penalty for Underpayment of Estimated Tax

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Frequently Asked Tax Questions

Estimated Tax - Large Gains, Lump-sum Distributions, etc.

If I anticipate a sizable capital gain on the sale of an investment during the year, do I need to make a quarterly estimated tax payment during the tax year?