I have a w2 that takes an amount of my paycheck and puts them towards taxes, but that amount will be nowhere close to the safe harbor or the amount I will owe at the end of the year due to a really good stock year. The w2 withholding is probably only 25% of what I will owe. I heard estimated taxes are only for the self employed. Is this accurate? How can I avoid any penalties?
You don't need to be self-employed to pay estimated taxes. https://turbotax.intuit.com/tax-tip...w-to-determine-what-to-pay-and-when/L3OPIbJNw "or if you have income other than your salary, you may need to pay estimated taxes each quarter to square your tax bill with Uncle Sam."
Honestly I would not worry about it unless you're over a few million in trading profits. The IRS have bigger fish to fry.
Also are estimated taxes prorated? I paid about 25% already through my employer but not the full amount
Estimated taxes are taxes you would pay to the IRS because they are not reported. Aside from yourself, anybody who employs you or does business with you is going to report the earnings you made with that place of business. As for paying 25 percent of your tax through your employer? Never head of that, but I suppose it could be a thing, so long as the employer remits your payment to the IRS.
If your trading/investment income is a significant part of your overall income, then yes, you should be paying quarterly estimated taxes on that income. It does not have to be exact. The IRS wants to see an effort. It isn't difficult to do, and it can avoid problems later.
When determining under withholding penalty, the IRS does not make a distinction between the amounts that are withheld on a W-2 vs the amounts that are made in separate estimated payments. You can adjust your W-2 withholding any time mid-year by submitting an updated W-4 to your employer. In order to avoid owing an under-withholding penalty, you must meet, at a minimum, ONE of the safe harbor provisions below: 1) You owe the IRS $1000 or less when you file your taxes. 2) If your AGI in the prior year was less than (150,000 joint / 75,000 single), you had at least 90% of the tax you owe for the current year withheld. 3) If your AGI in the prior year was less than (150,000 joint / 75,000 single), you had at least 100% of the tax you owed for the prior year withheld. 4) If your AGI in the prior year was more than (150,000 joint / 75,000 single), you had at least 90% of the tax you owe for the current year withheld. 5) If your AGI in the prior year was more than (150,000 joint / 75,000 single), you had at least 110% of the tax you owed for the prior year withheld. Also note that estimated tax payments are supposed to be paid quarterly, in proportion to the amount of income earned in that quarter. There is a whole worksheet that deals with that. I've never found the IRS to bother me about small variations, but that's just my experience. Also, I'm not an accountant, tax advisor, nor attorney, so seek out your own advice from a pro. In my opinion, the most conservative, fool-proof method to meet safe-harbor is #5 -- Simply withhold more than 110% of what your entire federal tax burden was for the prior year -- and do it by cranking up your W-2/W-4 withholding if possible, in order to avoid having to worry about your quarterly payments being "spread out correctly."