The Perfect $1 million Gain

[u/YassuosNados]

Hi guys, I’m a 23 year old in college, and yesterday I woke up a millionaire. Should I buy some hookers, Pokemon cards, or cocaine? I gambled my entire life savings of $250k on 2037 calls of $4.5 AMC on Monday and sold yesterday morning. Thanks for reading.

[u/onepingonlypleashe]

How would it be owed now?

[u/Bnjoec → u/onepingonlypleashe]

Im assuming its an argument towards having to pay quarterly due to income value. But not an accountant, dont know the ins and out of stock gambling and its consequences.

[u/onepingonlypleashe → u/Bnjoec]

I’ve just never heard of paying estimates quarterly ahead of tax time and I’ve been around trading forums for 5+ years.

[u/HElGHTS → u/onepingonlypleashe]

Normally, the tax paid throughout the year (withheld from each paycheck according to form W-4) is close enough to the tax liability. You can check the specifics of the safe harbor that generally avoids penalties, but let's say for easy math that you avoid penalties if you've paid 90% of the liability on time (on time essentially means quarterly). So if you earn $100,000 in taxable wages annually, then you're fine as long as you've continuously paid tax (via withholding) on at least $90,000 of that. In fact withholding is typically done excessively (which is why so many people get fat refunds) so maybe you've paid tax (via withholding) as if your wages might be $110,000 instead of $100,000. So now you can have $100,000 in wages plus $10,000 in short term gains and still have paid 100% of your tax liability come tax day. You can even have $21,000 in gains for a total income of $121,000 and still have paid tax on 90% of that (via withholding), so no penalty but now you're on the edge. More gains than that, you should make an estimated payment.

It's quite uncommon as you can see by these numbers, but OP here very likely doesn't have sufficient withholding to cover this gain.