Tax Experts
Do I Need to Prepay Tax on a Big Investment Return?
By Kevin McCormally, Editorial Director, Kiplinger.com
April 2008
Advertisement
Q: In January I sold a collector car and realized a gain of around $300,000.00. I'm retired and my taxable income generally is around $35,000.00 mainly from interest.
Should I be making estimated payments on the gain or can it wait until next April 15, 2009? -- Tom M.
Kevin's Answer
You may NOT need to make estimated payments based on the profit.
The penalty for underpaying your taxes includes an escape hatch, an exception that waives the penalty if during the year (2008 in this example) you pay the IRS (via withholding or quarterly payments) an amount equal to what you owed in the previous year. So, if you pay in as much during 2008 than you owed in 2007, you can't be penalized. Yes, you'll have a whopping bill to pay next April 15, but you will have had the use of the money for an extra year.
Discuss