35:["$","$L36",null,{"category":"$37","relatedArticles":[{"id":"cG9zdDoyMzUzNjQ=","databaseId":235364,"postId":235364,"author":{"node":{"id":"dXNlcjo5NA==","databaseId":94,"userId":94,"avatar":{"url":"https://secure.gravatar.com/avatar/72c05cde57f4d7ee65af27e91a5315c2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Eric","fullName":"Eric Reed","lastName":"Reed","name":"Eric Reed","postCount":{"pageInfo":{"offsetPagination":{"total":901,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"ereed","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":81,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$38","date":"2024-02-08T07:30:00","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyMzYzNzk=","databaseId":236379,"altText":"","date":"2024-02-02T11:53:12","fileSize":36464,"mimeType":"image/jpeg","modified":"2024-02-02T11:53:12","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/02/iStock-1481193734-modified-8d43489c-12da-4b8f-b83f-0faa579757c2.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-2-2","readable":"February 2, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":{"expertise":"Retirement Planning, Social Security, Estate Planning, Taxes","__typename":"User_Additionalmeta"},"email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":308,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"pvillanova","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/selling-house-netting-620k-do-i-pay-capital-gains","metaDesc":"If you're netting $620,000 from the sale of your house as you downsize for retirement, you may owe capital gains taxes on some of that gain. ","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":7,"title":"I'm Selling My House to Downsize for Retirement, and I’ll Net $620k. Do I Have to Pay Capital Gains Taxes?","__typename":"PostTypeSEO"},"slug":"selling-house-netting-620k-do-i-pay-capital-gains","status":"publish","title":"I’m Selling My House to Downsize for Retirement, and I’ll Net $620k. Do I Have to Pay Capital Gains Taxes?","uri":"/taxes/selling-house-netting-620k-do-i-pay-capital-gains","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5NA==","databaseId":94,"userId":94,"avatar":"$39","description":"Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.","additionalMeta":"$3a","email":null,"firstName":"Eric","fullName":"Eric Reed","lastName":"Reed","name":"Eric Reed","postCount":"$3b","slug":"eric-reed","__typename":"User"},"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":"$3e","description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":"$3f","email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":"$40","slug":"patrick-villanova-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxOTUwNg==","children":"$43","databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":81,"slug":"tax-planning","ancestors":"$45","parent":"$48","__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

When you sell your primary home, the IRS allows you to exclude a significant portion of the profit from your taxes. This exclusion – $250,000 for single filers and $500,000 for married, joint filers – is large enough that many sellers don’t end up paying federal taxes on the capital gains from a home sale. But if you’re netting $620,000 from the sale of your house as you downsize for retirement, you will probably owe capital gains taxes on some of that profit.

","

A financial advisor can help you make financial decisions, like optimizing the sale of real estate within the context of your financial plan. Find a fiduciary financial advisor today.

","

Taxes on the Sale of Property

","

When you sell an asset, including real estate, you may owe capital gains taxes on the profit from the sale. The capital gain can be calculated by simply subtracting the assets cost basis from its sale price.

","

In the case of real estate, you’ll have to calculate the property’s adjusted cost basis – the amount you paid for the home, plus any additional investments or improvements that you made to it. This can include any upgrades, expansions or additions that you’ve made to the property. It does not include repairs and maintenance, interest payments or temporary changes.

","

Essentially, if you spent money to improve the property’s value, expand its utility or extend its lifespan, you can add that to the property’s cost basis. If you spent money to maintain the property’s status quo, you cannot.

","

For example, say that you spent $500,000 on a house. Then, you spend $50,000 to renovate the kitchen and $10,000 on a new roof. You later sell the house for $700,000. Your taxable capital gain would be: $700,000 – ($500,000 + $50,000 + $10,000) = $140,000.

","

If you need help calculating your capital gains or planning for taxes, consider speaking with a financial advisor.

","

The Home Sale Tax Exclusion

","

","

When you sell a primary residence, the IRS allows you to exclude a considerable chunk of the profit from your capital gains taxes and only pay taxes on the remaining net profit. In 2024, this exclusion is $250,000 for single filers and $500,000 for married couples filing jointly.

","

For example, say that you are a single filer and you sell your home and make $300,000 in profit. After the exclusion, you would owe taxes on just $50,000 ($300,000 capital gain – $250,000 exclusion). Again, note that this is not the amount you owe, just the remaining amount on which you pay taxes.

","

This is known as the Section 121 Exclusion. While you can find the full details in Publication 523, to qualify for this exclusion you generally must be selling your primary home (so, not something like a vacation house or an investment property). You must have owned and used the house as your primary residence for at least 24 out of the last 60 months, although this time does not have to be consecutive. And in most cases, you won’t qualify for a Section 121 Exclusion if you’ve taken one in the previous two years.

","

If you sell real estate that doesn’t meet these requirements, you may pay capital gains taxes on the entire profit. However given how large these exclusions are, most households pay little, if any, taxes when selling a primary residence. A financial advisor with tax expertise can potentially help you determine whether you’re taking advantage of the proper deductions and exemptions when selling your home.

","

Do You Owe Taxes on Your Home Sale?

","

","

If you’re selling your home and pocketing $620,000 in capital gains, you’ll likely owe taxes on a portion of these profits. How much will depend on a pair of important questions:

","

Have you calculated your adjusted cost basis correctly?
Are you single or married?

","

First, ensure that you’ve added all applicable investments or improvements to the original cost basis (how much you paid for the home). As we discussed above, this includes any upgrades, additions and improvements you’ve made over the years.

","

You can also factor in the cost of selling the property. These expenses can be applied to the sales price, lowering it on paper. For example, you can subtract appraisal fees, attorney’s fees, advertising costs, closing fees, broker commissions and other costs “directly associated with selling your home” from the sale price.

","

If you have calculated your profit correctly, your taxable profits will depend on your Section 121 eligibility and your marital status. You will pay taxes on:

","

$620,000 if no exclusion applies
$370,000 if you’re a single filer and qualify for the $250,000 exclusion
$120,000 if you’re married and file jointly and qualify for the $500,000 exclusion

","

Your choice to downsize will not change this tax status. Years ago, Congress allowed home sales to take a tax exemption on what’s called a “like-kind exchange.” Under this law you could sell one house and use the proceeds to buy a new one, only paying taxes on any remainder. While you can still use a like-kind exchange on investment properties, you cannot do this with a primary home sale any longer.

","

The amount you will owe in taxes will depend on your capital gains tax rate. This sale will put you at least in the 15% tax bracket, which begins at $47,025 for single filers and $94,050 for married, joint filers in 2024. If you have significant profits from other assets, they may push you into the 20% tax bracket. If you have a high enough overall income, you might also be subject to the 3.8% Net Investment Income Tax.

","

Finally, if you owned this home for less than a year, the profit will be taxed as a short-term capital gain and be subject to ordinary income tax rates. But if you need additional help managing your tax liability from a home sale, consider meeting with a financial advisor before selling your home.

","

Bottom Line

","

The IRS allows you to exempt either $250,000 or $500,000 in capital gains that are realized when selling your primary residence. If the net profits exceed the exemption, you’ll pay capital gains taxes on the remaining gain. A single person who nets $620,000 from their home sale could pay capital gains taxes on up to $370,000 of the profits, while a married couple who files their taxes jointly could end up owing taxes on just $120,000 of the profits.

","

Capital Gains Tax Tips

","$4a","

Photo credit: ©iStock.com/gorodenkoff, ©iStock.com/Daisy-Daisy, ©iStock.com/PonyWang

"],"experts":null,"link":"/tax-planning/selling-house-netting-620k-do-i-pay-capital-gains","published":{"datetime":"2024-2-8","readable":"February 8, 2024"},"shareInfo":{"title":"I’m Selling My House to Downsize for Retirement, and I’ll Net $620k. Do I Have to Pay Capital Gains Taxes?","origin":"/taxes/selling-house-netting-620k-do-i-pay-capital-gains"},"isNewsArticle":false},{"id":"cG9zdDoyMjE1MTM=","databaseId":221513,"postId":221513,"author":{"node":{"id":"dXNlcjoxNDk=","databaseId":149,"userId":149,"avatar":{"url":"https://secure.gravatar.com/avatar/cddecd76c8cb633cdb25bbaffb1431d5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":null,"additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Brian J.","fullName":"Brian J. O'Connor","lastName":"O'Connor","name":"Brian J. O'Connor","postCount":{"pageInfo":{"offsetPagination":{"total":153,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"brianjoconnor","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":244,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$4b","date":"2023-12-12T09:48:47","excerpt":"

As the end of the year nears, calendars are crowded but make sure you set aside time to make sure your 2023 taxes won’t come back to bite you in 2024. Year-end tax moves fall into two categories: options that can save you money and required chores that can cost you money if not done […]

\n","featuredImage":{"id":"cG9zdDoyMjE2OTg=","databaseId":221698,"altText":"","date":"2023-12-12T09:46:51","fileSize":189877,"mimeType":"image/jpeg","modified":"2023-12-12T09:48:27","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/12/iStock-1427687224-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-12-12","readable":"December 12, 2023"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxNjc=","databaseId":167,"userId":167,"avatar":{"url":"https://secure.gravatar.com/avatar/ddd04b792d5bd154ea791bf3a9ec0edb?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Jaclyn is Director of Economic Analysis at SmartAsset. With a bachelor of arts in economics from The College of New Jersey, she evaluates data for trends that affect your financial life. As a spokesperson for SmartAsset, she has been cited by Bloomberg, CNBC, Business Insider, Fox News, The Hill and many more. \r\n\r\nJaclyn was previously an editor for CNET Money, where she covered banking, investing, credit cards and real estate. She also served as managing editor of small business content for Bizfluent, Work.Chron and AZCentral, and as a research consultant for NAPCO Media. As a past real estate licensee and Reatlor®, Jaclyn managed contracts for residential properties, while working closely with first-time homebuyers, investors and mortgage brokers.","additionalMeta":{"expertise":"Financial Planning, Investing, Taxes, Real Estate","__typename":"User_Additionalmeta"},"email":null,"firstName":"Jaclyn","fullName":"Jaclyn DeJohn","lastName":"DeJohn","name":"Jaclyn DeJohn","postCount":{"pageInfo":{"offsetPagination":{"total":57,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"jdejohn","__typename":"User"},"reviewedBy":null,"writtenBy":{"id":"dXNlcjoxNDk=","databaseId":149,"userId":149,"avatar":{"url":"https://secure.gravatar.com/avatar/cddecd76c8cb633cdb25bbaffb1431d5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":null,"additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Brian J.","fullName":"Brian J. O'Connor","lastName":"O'Connor","name":"Brian J. O'Connor","postCount":{"pageInfo":{"offsetPagination":{"total":153,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"brianjoconnor","__typename":"User"},"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/end-of-year-tax-tips","metaDesc":"Year-end tax moves fall into two categories: options that can save you money and required chores that can cost you if not done correctly.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"The Ultimate List of End of Year Tax Tips","__typename":"PostTypeSEO"},"slug":"end-of-year-tax-tips","status":"publish","title":"The Ultimate List of End-of-Year Tax Tips","uri":"/taxes/end-of-year-tax-tips","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoxNDk=","databaseId":149,"userId":149,"avatar":"$4c","description":null,"additionalMeta":"$4d","email":null,"firstName":"Brian J.","fullName":"Brian J. O'Connor","lastName":"O'Connor","name":"Brian J. O'Connor","postCount":"$4e","slug":"brian-j-oconnor","__typename":"User"},"editedBy":{"id":"dXNlcjoxNjc=","databaseId":167,"userId":167,"avatar":"$51","description":"Jaclyn is Director of Economic Analysis at SmartAsset. With a bachelor of arts in economics from The College of New Jersey, she evaluates data for trends that affect your financial life. As a spokesperson for SmartAsset, she has been cited by Bloomberg, CNBC, Business Insider, Fox News, The Hill and many more. \r\n\r\nJaclyn was previously an editor for CNET Money, where she covered banking, investing, credit cards and real estate. She also served as managing editor of small business content for Bizfluent, Work.Chron and AZCentral, and as a research consultant for NAPCO Media. As a past real estate licensee and Reatlor®, Jaclyn managed contracts for residential properties, while working closely with first-time homebuyers, investors and mortgage brokers.","additionalMeta":"$52","email":null,"firstName":"Jaclyn","fullName":"Jaclyn DeJohn","lastName":"DeJohn","name":"Jaclyn DeJohn","postCount":"$53","slug":"jaclyn-dejohn","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$56","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":244,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

","

As the end of the year nears, calendars are crowded but make sure you set aside time to make sure your 2023 taxes won’t come back to bite you in 2024.

","

Year-end tax moves fall into two categories: options that can save you money and required chores that can cost you money if not done correctly. Here’s what to know.

","

Need help with a strategy to reduce your taxes? Talk to a financial advisor today.

","

Avoiding Penalties

","

Check Your Withholding

","

Uncle Sam likes to get paid all year long, so if you don’t pass along enough tax money in the form of withholding or estimated quarterly tax payments you’ll face a penalty plus interest, which is now 8% for the IRS. Calculating the exact penalty can be done with IRS Form 2210. If you underpaid withholding by less than $1,000 you’ll face no penalty. You’ll also escape penalties if you paid an amount equal to 100% of last year’s tax or 90% of this year’s tax. You can check your withholding with the IRS online estimator.

","

Rollovers

","

If you left a job recently, make sure you rolled any 401(k) or other retirement money into your new employer’s plan or a regular Individual Retirement Account. It’s important to complete a rollover within 60 days of the funds being distributed, unless certain extenuating circumstances apply. Depending on the type of accounts you roll over to and from, a rollover can also impact your gross income, and therefore your taxes. Note that in some cases you may also have to pay a 10% early withdrawal penalty, so you may have to account for that in your budget.

","

A financial advisor can help you determine the best way to structure your rollovers.

","

Take Your RMDs

","

At a certain point, the IRS wants to get its hands on the taxable portion of your tax-deferred retirement accounts, such as traditional IRAs and 401(k)s. This year, that point comes if you hit age 73 during the year – but you’ve got until April 1 to make that first withdrawal. If you’re past that point, you’ve got until Dec. 31. If you miss the deadline, the amount not withdrawn is subject to a 50% excise tax. Example: A 75-year-old with $1 million in accounts would face a penalty of about $20,000. You can see how to calculate your own RMD here .

","

Cutting Your Tax Bill

","

Donate Your RMDs

","

You don’t want to be penalized for not taking your annual RMD, as described above, but if you take it, you’ll pay taxes. One way around that is to make a qualified charitable distribution. An IRA holder can send up to $100,000 to one or several charities with that money counting toward the annual RMD requirement, as well as being a nontaxable charitable donation. In addition, $50,000 can be used in one year one time only to set up a charitable gift annuity.

","

Talk to a financial advisor to discuss the structuring of charitable gifts.

","

Take Your Market Losses

","

If stocks in your taxable investment accounts have taken a dive this year, you can use those losses to offset capital gains on profitable stocks you’ve sold at any time during the year. By using tax-loss harvesting you can sell enough stock to produce a loss that can wipe out your gains plus $3,000 more, turning what would have been a tax bill into a tax refund. Just make sure you don’t purchase similar securities within 60 days or you could run afoul of wash-sale rules.

","

Convert

","

If you’ve suffered a loss in an IRA or similar tax-deferred retirement account you can’t take advantage of tax-loss harvesting, but you still can cut your future tax bills by a significant amount. Converting your IRA to Roth IRA means you’ll pay taxes now but that all your future withdrawals – including gains – will come out tax-free. By converting accounts in a down year, you’ll reduce the current tax bite than if you wait for your accounts to recover. Note, you’ll need to keep the Roth account open for five years before making a withdrawal to avoid penalties.

","

A financial advisor can help you discover more ways to reduce your taxes.

","

Bottom Line

","

Year-end tax planning helps you avoid paying penalties for any tax missteps you might have made during 2023 and offers several options that can cut your tax bill – if you act before midnight Dec. 31.

","

Tips

","

Tax planning is a huge part of investing and structuring your retirement withdrawals so that you keep as much of your money as possible. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor, get started now.

","

A financial advisor can help you project your potential retirement income and help provide saving and investment strategies to get you there. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

","

Photo credit: ©iStock.com/andresr

"],"experts":{"name":"Jennifer Mansfield, CPA","topic":"Taxes","bio":"Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice.","imageUrl":"https://d31s10tn3clc14.cloudfront.net/imgs/jennifer-mansfield.png","email":"jmansfield@smartasset.com"},"link":"/taxes/end-of-year-tax-tips","published":{"datetime":"2023-12-12","readable":"December 12, 2023"},"shareInfo":{"title":"The Ultimate List of End-of-Year Tax Tips","origin":"/taxes/end-of-year-tax-tips"},"isNewsArticle":false},{"id":"cG9zdDoyMjE3OTk=","databaseId":221799,"postId":221799,"author":{"node":{"id":"dXNlcjo5NA==","databaseId":94,"userId":94,"avatar":{"url":"https://secure.gravatar.com/avatar/72c05cde57f4d7ee65af27e91a5315c2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Eric","fullName":"Eric Reed","lastName":"Reed","name":"Eric Reed","postCount":{"pageInfo":{"offsetPagination":{"total":901,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"ereed","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":244,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$5d","date":"2023-12-14T07:00:00","excerpt":"

Imagine you have $50,000 to give to your daughter and her husband for a down payment on their new home. The question is, will you owe gift taxes because of your generous gesture? Despite popular framing, the federal gift and estate taxes only apply to very wealthy households. Unless you have approximately $13 million to […]

\n","featuredImage":{"id":"cG9zdDoyMzIzNTU=","databaseId":232355,"altText":"","date":"2023-12-13T17:03:46","fileSize":68764,"mimeType":"image/jpeg","modified":"2023-12-13T17:03:46","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/12/hell-forever-be-the-most-important-person-in-her-life.jpg_s1024x1024wisk20cY696Qm-LZS8SajkwfJ5buN5BVkp-XkMgy23oTmikukI.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-12-13","readable":"December 13, 2023"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":{"expertise":"Retirement Planning, Social Security, Estate Planning, Taxes","__typename":"User_Additionalmeta"},"email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":308,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"pvillanova","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/give-daughter-50k-for-down-payment","metaDesc":"Despite popular framing, the federal gift and estate taxes only apply to very wealthy households. Unless you have approximately $13 million to give away over your lifetime, these taxes likely won't apply to you.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":7,"title":"I Want to Give My Daughter and Her Husband $50,000 For a Down Payment. Do I Have to Worry About the Gift Tax?","__typename":"PostTypeSEO"},"slug":"give-daughter-50k-for-down-payment","status":"publish","title":"I Want to Give My Daughter and Her Husband $50,000 For a Down Payment. Do I Have to Worry About the Gift Tax?","uri":"/taxes/give-daughter-50k-for-down-payment","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5NA==","databaseId":94,"userId":94,"avatar":"$5e","description":"Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.","additionalMeta":"$5f","email":null,"firstName":"Eric","fullName":"Eric Reed","lastName":"Reed","name":"Eric Reed","postCount":"$60","slug":"eric-reed","__typename":"User"},"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":"$63","description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":"$64","email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":"$65","slug":"patrick-villanova-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$68","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":244,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

Imagine you have $50,000 to give to your daughter and her husband for a down payment on their new home. The question is, will you owe gift taxes because of your generous gesture?

","

Despite popular framing, the federal gift and estate taxes only apply to very wealthy households. Unless you have approximately $13 million to give away over your lifetime, these taxes likely won’t apply to you.

","

A financial advisor can help you navigate and plan for gift and estate taxes. Find an advisor today.

","

To be very clear, these are the rules for federal taxation. Every state also has its own tax laws and every tax profile is different, so make sure to speak with a financial or tax professional before making any plans for your own assets. However, there are two main issues to consider within this scenario: the mortgage process and potential gift tax implications.

","

Down Payments and Gifts

","

","

With the mortgage and lender process, you want to ensure that you fill out all forms and requirements correctly. It is extremely unlikely that you can complicate the title to this property, but you can certainly complicate or invalidate the loan by making a mistake.

","

When your daughter applies for her mortgage, the lender will go through her finances in detail. They want to know what assets she has, where they came from, what income she has and any other information related to how she will repay this debt. The down payment is intended as an indicator of this financial stability, so receiving it from a third party can raise concerns.

","

Many lenders have rules around who can provide the money for a down payment. It’s common for them to reject a mortgage with a gifted down payment unless that money comes from someone with a longstanding relationship to the borrower. Among other issues, this is intended to prevent fraud and money laundering. Since the borrower is your daughter, that shouldn’t be a problem.

","

If you are giving the money directly to your daughter you will typically either need to “season” the money or provide a gift letter. Seasoning the money means transferring it more than 60 days in advance, again as an indicator of legitimacy against fraudulent transfers. A gift letter is a document signed by both the giver and the recipient confirming that this is a unilateral transfer with no right to repayment.

","

The specific format of the gift letter will vary based on lender and jurisdiction, so consult an attorney about this document. A financial advisor can also potentially help you through this process.

","

You may also make this transfer through the loan process, making the down payment on your daughter’s behalf rather than transferring the money to her. The lender will require you and your daughter to disclose this during the loan application process. In and of itself, your gift will typically not be a problem, but failing to specify the difference between borrower and payer will almost always complicate (if not invalidate) the loan.

","

Gift Tax Exclusions and Exemption Limits

","

","

Beyond the rules that surround making a gift of this sort, your main consideration here is the gift tax.

","

This is a tax that the IRS places on unilateral transfers. If you give someone money or assets without expecting fair-value compensation in return, you have given them a gift. If you give them enough money, eventually you (the gift giver) must pay taxes on the transfer. Gift tax rates range from 18% to 40% based on the size of the gift.

","

However, the gift tax only applies to very few households due to a pair of important tax provisions: an annual exclusion and a lifetime exemption limit. And if you have additional questions about either, consider speaking with a financial advisor.

","

Annual Exclusion

","

The first is the gift tax’s annual exclusion. This is the amount of money you can give to someone each year regardless of gifts in past or future years. In 2023, the annual exclusion is set at $17,000 for individuals and $34,000 for married couples who file their taxes jointly. In 2024, those limits will increase to $18,000 for individuals and $36,000 for married couples.

","

The annual exclusion applies on a per-recipient basis. So, for example, say that you had four children. You could give each of them $17,000 in 2023 without triggering any gift taxes.

","

Lifetime Exemption

","

The lifetime gift and estate tax exemption is the amount of money you can give away over the course of your life – or at your death – without triggering either gift or estate taxes. For gifts that exceed the annual exclusion, the difference is applied to your lifetime exemption. If you give someone a gift over that year’s annual exclusion and have exhausted your lifetime exemption, you’ll owe gift taxes on the amount of money that exceeds that year’s exclusion.

","

In 2023, the lifetime gift and estate tax exemption is $12.92 million for individuals, which means married couples have a combined exemption limit of $25.84 million. In 2024, the exemption will increase to $13.61 million for individuals and $27.22 million for married couples. If an individual has already gifted $12.92 million over the exclusion limits by 2023, they will be able to gift another $690,000 in 2024 (not including the annual exclusion amount).

","

Unlike the annual exclusion, the lifetime exemption does not reset. While you can gift up to the annual exclusion each year, any remainder permanently reduces your lifetime cap. The lifetime exemption is on a per-donor basis, meaning that it applies collectively to all gifts you have given. For example, say that in 2023 you give $20,000 to each of your four children. Each gift exceeds the exclusion by $3,000. Collectively, they would lower your lifetime gift and estate tax exemption by $12,000.

","

Gift Taxes And Down Payments

","

When it comes to your daughter’s down payment, the tax issues are this: Are you married? And how much have you given away throughout your life? Let’s assume you’re single for simplicity’s sake.

","

First, if you give her the down payment money in 2023, the first $17,000 of the gift will automatically be free of any potential tax liability. However, since the gift exceeds the annual exclusion by $33,000, that remainder will lower your lifetime exemption.

","

So, for example, if you have never given anyone a taxable gift, you will pay no gift tax and your annual exclusion will be reduced to $12.887 million ($12.92 million minus $33,000). If you have already exhausted your lifetime exemption, you would have to pay taxes on the $33,000.

","

However, there would still be ways to manage this potential tax liability. If you could wait until 2024 to give your daughter the money, your lifetime exemption would go up to $13.61 million. You can apply the remainder to the newly raised cap and will owe no taxes on the excess gift. But if you need additional help managing your tax liability, consider working with a financial advisor.

","

Bottom Line

","

Unless you have gifted more than $12.92 million over your lifetime, you can almost certainly give a $50,000 down payment to your daughter or other family member and not owe gift taxes in 2023. Just be careful to do the paperwork right, otherwise, it could complicate the loan.

","

Gift Tax Tips

","$6f","

"],"experts":"$70","link":"/taxes/give-daughter-50k-for-down-payment","published":{"datetime":"2023-12-14","readable":"December 14, 2023"},"shareInfo":{"title":"I Want to Give My Daughter and Her Husband $50,000 For a Down Payment. Do I Have to Worry About the Gift Tax?","origin":"/taxes/give-daughter-50k-for-down-payment"},"isNewsArticle":false},{"id":"cG9zdDoyMTg3NDU=","databaseId":218745,"postId":218745,"author":{"node":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":773,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":244,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$71","date":"2023-11-17T15:48:01","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyMjAyNDM=","databaseId":220243,"altText":"A couple estimating how much they will have to pay in taxes.","date":"2023-11-17T15:38:53","fileSize":279476,"mimeType":"image/jpeg","modified":"2023-11-17T15:39:35","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/11/iStock-1393598855.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-11-17","readable":"November 17, 2023"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":null,"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":773,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/how-can-estimated-taxes-be-paid","metaDesc":"There are multiple ways to approach paying estimated taxes. Here is what to know and how to approach it.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"How Can Estimated Taxes Be Paid?","__typename":"PostTypeSEO"},"slug":"how-can-estimated-taxes-be-paid","status":"publish","title":"How Can Estimated Taxes Be Paid?","uri":"/taxes/how-can-estimated-taxes-be-paid","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":"$72","description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":"$73","email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":"$74","slug":"mark-henricks","__typename":"User"},"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$77","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$78","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$79","slug":"arturo-conde-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$7c","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":244,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

If you earn income that doesn’t have taxes automatically withheld, such as income from investments or self-employment, you may need to pay estimated taxes. Estimated taxes are pay-as-you-go tax payments individuals make throughout the year, typically quarterly, to cover their expected tax liability. The quarterly payment approach can help avoid underpayment penalties. However, instead of paying quarterly, you can also pay estimated taxes when you file your return, increase tax withholding from another source of income, or apply your refund to any balance due. Consider asking a financial advisor to walk through the process and help avoid penalties.

","

Estimated Tax Basics

","

You generally need to pay estimated taxes if you expect to owe at least $1,000 when you file your tax return. This includes income earned from self-employment, freelancing, side jobs, interest, dividends and capital gains. The IRS requires you to pay as you earn to ensure the government receives a steady stream of tax revenue, rather than getting a lump sum payment once a year.

","

It’s usually in your best interest to go along with this requirement. That’s because, if you don’t pay enough estimated taxes during the year, you may owe an underpayment penalty when you file your return. The IRS calculates underpayment penalties by charging interest on the amount underpaid. The interest rate it charges changes periodically, with the rate currently set at 8% annually.

","

Different Ways to Pay

","

While you have to pay, you have a few options for the way you make estimated tax payments:

","

Pay quarterly: Most taxpayers do this, sending in quarterly installments on April 15, June 15, September 15, and January 15. Each installment generally is equal to one-quarter of the total tax bill you expect. You can pay online, by phone, or by mail using Form 1040-ES.
Pay when filing: Instead of quarterly payments, you can pay your full estimated tax liability when you file your return by the April deadline. This increases your risk of penalties if you underpay, however.
Withhold from other income: If you have W-2 job income, you can increase your withholdings to cover estimated taxes on 1099 income.
Apply refund to balance: If you’re owed a refund, you can apply it to estimated taxes due instead of receiving a check.

","

Avoiding Underpayment Penalties

","

","

You can sidestep underpayment penalties even if you haven’t paid enough in estimated taxes to equal your total current tax bill. Do this by meeting one of the IRS safe harbor rules. For most taxpayers, this means paying estimated taxes equal to at least 90% of your current year tax liability or 100% of your prior year liability.

","

That is, if you owed $9,000 last year and have paid in $9,000 in estimated taxes for this year, you have met the safe harbor provision and won’t be subject to underpayment penalties, even if you owe more in taxes this year. You would also satisfy the safe harbor provisions if you paid $9,000 in estimated taxes this year and your current tax liability is no more than $10,000, since $9,000 is equal to 90% of $10,000.

","

Higher-income taxpayers have a different standard. If adjusted gross income (AGI) exceeds $150,000, they must pay at least 110% of their prior year liability.

","

An Estimated Tax Example

","

Consider a self-employed taxpayer who expects to earn $60,000 this year. They had no tax liability last year. To avoid underpayment penalties, they must pay at least 90% of their expected 2023 tax liability.

","

They calculate this will be about $13,500 based on their income and deductions. To meet the safe harbor, they must pay at least $12,150 during the year. That amount is equal to 90% of $13,500, which fulfills the IRS safe harbor provisions. They decide to pay quarterly installments of $3,037.50 each.

","

This helps avoid a penalty while providing a framework for budgeting tax payments over the year. If they owe any additional amount when filing their return, they can pay it by April 15.

","

Bottom Line

","

","

Paying estimated taxes is required for anybody who earns income from self-employment or another source that does not withhold taxes. Making quarterly payments of enough to meet the IRS safe harbor provisions helps avoid penalties. It also allows you to budget tax payments each year so you don’t face a big payment at filing time. However, you can wait to pay estimated taxes until you file your return if you are willing to pay the underpayment penalty. Other options include withholding more from another income source or allocating part of your refund to estimated taxes.

","

Tax Planning Tips

","$83","

"],"experts":"$70","link":"/taxes/how-can-estimated-taxes-be-paid","published":{"datetime":"2023-11-17","readable":"November 17, 2023"},"shareInfo":{"title":"How Can Estimated Taxes Be Paid?","origin":"/taxes/how-can-estimated-taxes-be-paid"},"isNewsArticle":false}]}]