Updated July 29, 2026. Quick answer: Start from what is different: nobody withholds anything on a buyer’s wire. Most estimated-tax advice assumes an employer is remitting on your behalf and treats increasing withholding as the main lever. You do not have that lever. What you have instead is the prior-year safe harbour — which is often generous enough that you owe far less this year than the headline gain suggests, unless your last tax year was a short one, in which case you have no prior-year safe harbour at all.
The safe harbour, and the sentence that can remove it
IRC §6654(d)(1)(B) sets the required annual payment as the lesser of “(i) 90 percent of the tax shown on the return for the taxable year …, or (ii) 100 percent of the tax shown on the return of the individual for the preceding taxable year.” Then, in its own flush sentence: “Clause (ii) shall not apply if the preceding taxable year was not a taxable year of 12 months or if the individual did not file a return for such preceding taxable year.”
Because it is the lesser of the two, the prior-year figure is a ceiling on what you must prepay, not a target. In a year when a sale multiplies your income, 100% of last year’s modest tax is usually the smaller number by a wide margin — which is why the correct reserve is often much less than a percentage of the gain, and why the very large payment lands in April rather than in the quarter you closed.
The trap that is specific to sellers, and that nobody connects. Read the flush sentence against how business sales actually happen. A seller who wound up an entity, changed a fiscal year, or filed a short final return did not have a preceding taxable year of twelve months. Clause (ii) is then unavailable outright. There is no reduced version and no proration — you are thrown onto 90% of a sale-year tax bill, computed on the very income that made this question urgent. The same is true of a first-time filer.
Why the standard advice inverts here
| Wages or equity comp | A business sale | |
|---|---|---|
| Is anything withheld? | Yes, by the employer | No |
| Best timing lever | Raise withholding — treated as paid ratably across the year | None. Estimated payments are dated when made |
| Prior-year safe harbour | Normally available | Available unless the prior year was short or unfiled |
| Where the cash comes from | Payroll, continuously | One wire, once, and it is already in your account |
That third row is the reason to check your prior year before doing any arithmetic. It is a yes/no question with a large consequence, and it is answerable in a minute from last year’s return.
The 110% substitution runs on the wrong year
IRC §6654(d)(1)(C)(i): where AGI on the return for the preceding taxable year exceeds $150,000, clause (ii) is applied “by substituting ‘110 percent’ for ‘100 percent’.” Under (C)(ii) the threshold halves to $75,000 for a married individual filing separately. Note the direction: the year that hurts is the one after the sale, because the gain inflated the prior-year AGI the test reads, and 110% is then applied to a tax bill that was itself swollen by the sale. Neither threshold is indexed, so both catch more sellers every year.
The de minimis exception is measured on the balance, not the bill. IRC §6654(e)(1) imposes no addition where the tax shown on the return, “reduced by the credit allowable under section 31, is less than $1,000.” The §31 credit is wage withholding. So a seller who also holds a job, and whose salary withholding covers all but a little of the total, can sit under the threshold on a return that looks nothing like a $1,000 tax year.
What the charge is, so you can price ignoring it
Not a penalty in the ordinary sense. IRC §6654(a) applies “the underpayment rate established under section 6621” to “the amount of the underpayment” for “the period of the underpayment” — it accrues like interest from a missed installment forward. Two consequences: being one installment late is far cheaper than the phrase “underpayment penalty” suggests, and the base includes the tax under chapters 1, 2 and 2A, so the net investment income tax sits inside it.
Reserve sizing is arithmetic on your own return, and this page states no percentage of proceeds to hold back because no such figure exists in the statute or anywhere else. What decides your number is the allocation across the seven asset classes, which sets how much of the price is ordinary income rather than capital gain, and how much recapture is taxed in the year of sale regardless of what you were paid.
Sources
IRC §6654(a), §6654(d)(1)(A), §6654(d)(1)(B) including its flush sentence, §6654(d)(1)(C)(i) and (C)(ii), §6654(e)(1), §6654(f) and §6654(g); IRC §6621; IRC §31. The section was searched for cost-of-living, inflation and adjustment language: the thresholds below are not indexed. All read July 2026.
This states what the cited authority says. It is not tax advice. What you owe depends on the allocation actually agreed, your entity type, your state, and income no page can see — the point here is which rules decide the timing, not what your number is.