How to Pay Estimated Taxes on Stock Market Investments
When you owe money to the Internal Revenue Service (IRS), the government wants its money as soon as possible. If you wait until the end of the filing season to do your taxes, you may end up owing not only additional taxes but also penalties and interest. If your tax return shows that you owe more than $1,000, you may be subject to penalties, so it is important to file estimated taxes throughout the year. If you derive a great deal of income from sources like capital gains and stock dividends, you will indeed have to pay estimated quarterly taxes.
Other People Are Reading
Instructions
-
-
1
Gather your tax information from last year and review your reported income, including income from your job, capital gains, dividends and interest. The income from your job will already have taxes withheld, but the same will not be true of your stock market profits. While the ups and downs of the market make it difficult to predict your income to the dollar, checking last year's return is a good place to start.
-
2
Look at your current brokerage statements to get an idea of the dividend income you will receive for the year. On your most recent statement, look at the dividends your stock market investments have returned for the month, and multiply that amount by 12. Though the amount may vary from month to month, this will provide a good estimate of your annual stock market earnings. Make the same calculation for capital gains.
-
-
3
Complete Form 1040-ES. You will need to estimate your taxes due and pay what you owe. You can download this form from the IRS website, but keep in mind that the complex calculations this form requires make it a difficult to complete by hand. A tax preparation software package like TurboTax or TaxCut will do the calculations for you. Keep in mind that you will probably need to purchase the professional edition because the basic software package will probably not support estimated taxes. You may also choose to have a professional tax preparer do the calculations.
-
4
Enter the amounts you calculated based on your most recent monthly brokerage statement. Also enter the amount you expect to earn from your job and all other sources of income during the coming year. You will need to calculate your estimated taxes based on all income, not just the portion derived from stock market investments.
-
5
Calculate the amount you owe. Divide that amount by four and complete the payment voucher included with Form 1040-ES. Since you will be paying quarterly, you will need to divide the total you expect to owe for the year by four. Write a check or complete an electronic transfer from your bank account, then send the voucher to the IRS. After you make your first estimated tax payment, the IRS will send you payment vouchers for the remaining three payments.
-
1
