Taxpayer asks:
This is my situation. In 2007, I sold a bunch of stock my grandpa gave me, and had a gain of roughly $8,000. I had my regular income at around $50,000, and $6,583 was withheld. I did not make any estimated tax payments throughout the year. I owed $1,271 in taxes.
My question is:
1. Do you know if I will be penalized, and if so, what the penalty would be? I am 25 and this is my first time I’ve owed taxes.
2. TurboTax has me making estimated tax payments for 2008. Do I need to make these, as the stock sale was a one time transaction and next year, I’m anticipating a refund with my current withholding.
Thanks for your help!
Taxgirl says:
1, The short answer is that you shouldn’t be penalized for not making estimated payments if you did not have a tax liability last year. For information about the safe harbor rules, you can check out my prior post on estimated payments.
2, TurboTax is going to assume that your situation is the same next year as in the current year unless you tell it different. So, if you would have received a refund had you not had the gain from the stock, then you don’t need to make estimated payments. However, if you’re going to have a liability next year, you will need to make estimated payments in order to avoid an underpayment penalty.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
Its probably not a bad idea to go ahead and make estimated tax payments, just to be on the safe side !
A prime example of why Turbo Tax (or any tax program) is a poor substitute for a live tax advisor. A live tax advisor would first ask how you arrived at the gain amount you stated. If you received $8,000 from the sale then that was not your gain and the gain was much lower. And the short and simple answer to the penalty question is that if your tax liability (the amount of tax, before you subtract how much was withheld) in TY 2006 was less than $6,583 you would not owe a penalty.