JFTR...the penalty for underpayment is .5%...so if that extra money you hold back can generate more than that...who the f**k cares.
If you had $0 total tax liability in 2019 you do not need to make quarterly payments this year based on Safeharbor 3 below. There are 3 "Safeharbors" to make sure you avoid underpayment penalties. 1. If you owe less than $1,000. You may not know if you do or not until EOY. 2. If you pay within 90% of your actual liability for the current year. You will not know until EOY. 3. If you pay 100 or 110% of your prior year's tax liability. You know what you paid in taxes from last year's return so this is the easiest option. You may already know but if you have no other income make sure that you figure your LT gains up to $40,000 in total income is taxed at 0% if you are single. Your deductions will go against the ST gains first, so you get a pretty good amount taxed at 0%.
I am just going by the tax forms. The IRS wants to be paid evenly across the year. Obviously that is not practical if you are a trader. Some options: 1. Use the safe harbor rules to your advantage. 2. Use the "annualized income" form to alleviate any penalties due to uneven income throughout the year. 3. Don't worry about the estimated payments at all and just pay the penalties that come of it. 4. Overpay your estimated payments and get a refund. I would suggest running some scenarios through a tax program and figure out an optimal strategy for your specific situation.
It sounds like we're in the same boat. I had ample tax liability in 2019, so the safeharbor options don't work for me. 2020 was the start of a long-planned haiatus from a day job, so I have no other income, which means 60% of the first $40k of this year's 1256 gains are taxed at 0%, and the remaining 40% is taxed at 0% rate up to 12,400 (standard deduction), then on up into the usual brackets. I keep a googlesheet that calculates my tax liability in real-time, so I always know what's coming at year-end. I guess I'll just change the way I think about that field in my spreadsheet to quarter-end instead of year-end, and make payments accordingly.
Let me ask you this, what percentage of your 1256 annual traded volume do you MTM on Dec 31st? If you're an active trader with, say a $1M account, chances are you will have traded hundreds of millions by Dec 31 but will only have a few million notional that you MTM at the end of the year. So this whole idea that you don't know if you were profitable or by how much until Dec 31 because MTM is a complete red herring. Regardless, you have to either pay estimated taxes or meet the safe harbor requirements, regardless of what we think the rules should be. If you can legitimately show you had losses in early quarters and big gains in Q4 you can get the calculation weighted to reflect that and you won't get the penalty and interest. But if you make a big profit in Q2, pay estimated taxes, then have a big loss in Q4 you're just out of luck (if all your income is from 1256 trading). You just have to claim it back in Jan. Sucks but those are the rules. And to the OP, call up Green Trader or someone else who is a CPA and familiar with trading. As you can see, ask 10 jackasses on a trading forum a question and you'll get 10 contradictory answers. Don't trust anything you've read here, and keep in mind I'm also one of the 10 jackasses.
Well, let me TELL you this. I wish I had that conundrum. I really do. All I can do is hee-haw as one of the ten jackasses.
Whatever the notional, my point is that your profit or loss on Dec 31st that you MTM is generally a tiny portion of your annual P&L if you're an active trader. And if you're exclusively trading 1256 contracts for a living you're almost certainly a very active trader.
if you're a US trader, i'd think the best methods available are 1) using the annualized income form (basically instead of paying 4 equal quarterly amounts, you pay differing amounts each quarter based on how much you've made so far), or 2) not paying estimated quarterly payments and simply coughing up the penalty+interest EOY. as a trader, using the safe harbor rules has little upside and huge downside in the event that you have a losing quarter(s). also, don't forget that estimated quarterly payments apply to states as well, with each state having different % amounts due on different deadlines. for example, in CA, you pay no 3rd quarter estimated payment and instead have to pay 70% of your annual estimated quarterly payments all by 6/15/2020 this year, which is absolutely insane on its own. (source: https://www.ftb.ca.gov/pay/estimated-tax-payments.html) basically, CA wants 70% of your annual taxes upfront which is outright theft. also, trading 1256 contracts has no bearing on whether or not you need to pay estimated quarterly payments.
Hi there, I hope all is well. It has been some time since your last post on this topic. Were you ever able to get a CPA's feedback on your situation / question last year and would you be open to sharing what it was? Curious to know what you ended up doing and how that went for tax filing this year. Thanks.