Replies to post #80222 on Ariad Pharmaceuticals Inc fka ARIA

[biotech_researcher]

sekander- from a tax site I've bolded the most important section:

I just received a reasonably large capital gain. Do I need to pay some tax this year to avoid an April 2016 tax filing penalty?

Hi. I have received a capital gain, after acquisition of my employer, who I had equity in. I received this in May 2015. I believe I need to pay a percentage of this by mid June this year, to avoid a penalty payment in my April 2016 taxes. Is this correct? Thanks.


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You may or may not have to pay estimated taxes, depending on your situation. Assuming these are long term capital gains, taxed at favorable rates, the income tax impact my not be as big as you might think.

It's perfectly OK to owe the government a lot of money when your tax return is due. What you really want to do is to avoid being "underpaid" (a piece of jargon that has a specific tax meaning) and incurring underpayment penalties.

Most taxpayers will avoid being underpaid if they:

1)owe less than $1,000 in tax after subtracting their taxes WITHHELD and available tax credits,

OR

2)if they paid at least the lesser of
a)90% of the tax for the current year, or
b)100% of the tax shown on the return for the prior year. (If last year's return shows AGI over $150K (for married filing jointly) then change that "100%" figure to "110%.)

Of course the easiest of these "safe harbors" to figure out is 2)b) since the number comes right off your 2014 income tax return. If you're currently receiving a paycheck and can have your withholding come to the proper 2)b) exception number by the end of the year, then no estimated taxes are necessary. You could end up writing a very large check to the IRS to send in with your income tax return, but that check will not include any underpayment penalties.

If you can't make your 2015 withholding put you inside that 2)b) safe harbor then you'll have to make estimated tax payments, starting with the first due date after you receive the proceeds. You can use the 2014 TurboTax program to help you here by working through the "Form W-4 and Estimated Taxes" interview under the "Other Tax Situations" tab. TurboTax will prepare the Form 1040-ES's you'll need to send in with your payments.

It wouldn't hurt to at least scan through the IRS's instruction booklet on estimated taxes - the booklet also has worksheets and the Form 1040-ES forms that you can fill out by hand if you wish - to get a better understanding of estimated taxes. http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Assuming that you do make estimated tax payments in 2015 then the "first cut" of your 2015 income tax return will probably still show an underpayment penalty. That's because the "first cut" of the penalty calculation assumes income comes in smoothly throughout the year and under that assumption you'll be "underpaid" in at least the 1st quarter of the year, (the one that's covered by the 4/15 estimated tax payment). At that point you'll want to "annualize" your income for underpayment purposes, showing the IRS that the income did not come in during the 1st quarter of the year and that no underpayment penalty due for that/those quarters. TurboTax also has an interview for that process.

[Bxofscidad]

Hey Sekander,


I am a tax atty and if you want an answer to that question, please email me at [e-mail]


Barry