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If you sell a personal asset or an investment asset for a gain, you'll be subject to capital gains taxes. Unlike wages, there's no automatic tax withholding on capital gains. Instead, you're responsible for paying the tax when it's due. Depending on your financial situation, the capital gains tax may be due on April 15 or in the quarter that you earned the capital gain.
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Capital Gains Tax Due on April 15
For most taxpayers, capital gain taxes for a particular tax year are due by April 15 of next year. along with your other income tax. For example, if you receive the capital gain in January 2015, you'll pay the tax by April 15, 2016 when you file your 2015 tax return.
If you need extra time to process your return, you can request a six-month filing extension. However, the tax you owe is still due on April 15 and you'll be subject to interest and fees if you pay it late. If you don't have the cash to pay your capital gains taxes, inquire with the IRS about setting up a payment plan.
Capital Gain Taxes Due Throughout the Year
Technically speaking, tax is due as you receive income. If you have taxes withheld from your paycheck and your capital gains are
small relative to your income, you can wait until April 15 to pay capital gains taxes. However, if you don't withhold enough in taxes during the year, you need to make estimated tax payments. This can happen if your capital gains, interest income and business income are high relative to your wages. Complete the worksheet in Form 1040-ES to determine if you need to make estimated tax payments.
If you do need to make an estimated payment, make it the quarter you receive the payment. Estimated tax payments are due April 15. June 15, September 15 and January 15. If the due date falls on a weekend or national holiday, the due date is the first non-holiday weekday following the standard date.
Deferring Capital Gains Tax
One way to defer paying capital gains tax is to exchange your property instead of selling it. Under section 1031 of the tax code, the IRS allows taxpayers to roll over capital gains if they use the proceeds of a sale to purchase like kind property within 180 days. "Like kind" property is an asset of the same class, nature or character. Some property, like securities, inventory and partnership interests, don't qualify for the exchange. The rules for a 1031 exchange can be complicated, so work with a tax accountant or tax attorney to ensure you proceed correctly.