income tax documents and calculator
Latest Lesson Learned to avoid penalties at tax time. Track capital gains monthly throughout the year and do not forget to pay estimated taxes


Lesson Learned

I recently learned a lesson I would like to share.  At the end of last year, I did my regular end-of-year tax planning.  Looking at my income and estimated taxes paid to see if I needed to pay Q4 estimated taxes in January.  Seeing if I should harvest any losses.  Deciding if I should convert any of my Traditional IRA to a Roth IRA.

Now it is tax time.  I pulled together all my tax records.  I don’t own a lot of stocks in my NQ account.  During year-end planning, I assumed I did not have many capital gains from the sale of stock because I did not recall selling any large quantities.  When my 2022 Tax Reporting Statement from Fidelity showed up,  I did indeed have a large stock sale very early in 2022 that I had completely forgotten about.

Although this time, I was lucky.  It did not result in a penalty.  I had paid enough tax as a result of another lesson learned which offset this mistake.  I had planned for a Roth Conversion but did not do it.

The Fix

Following learning this lesson, I created an Excel spreadsheet to track my income monthly.  So now I track as I go through the year.   That way it is not such a big task to look back in December when I am doing my tax planning.  Then I can use this income spreadsheet to calculate my quarterly estimate taxes due.

Besides, Fidelity makes it easy.  Each monthly statement from Fidelity summarizes interest and dividends.  Also, both long term and short term capital gains.

Another key point, if you no longer have an employer withholding federal and state taxes, don’t forget to pay estimated taxes.  If you don’t you could face a 10% penalty for underpayment.  Or worse a 25% penalty for nonpayment.

You can avoid a penalty by paying the lesser of 90% of taxes for the current year or 100% of previous levies if your adjusted gross income is less than $150,000.  See this article on cnbc.

IRS: fourth-quarter tax deadline is Jan. 17. How to avoid penalties (


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