KEEPING THE TAX UNDERPAYMENT PENALTY AT BAY With the 2013 tax year behind you, now is the time to plan appropriately to make sufficient estimated tax payments. An underpayment of estimated tax may apply if you still owe $1,000 or more in additional tax after accounting for withholdings and estimated payments made throughout the year. Remember, to avoid underpayment penalties you are required to prepay either; • 100% of last years tax obligation* OR • 90% of next years tax obligation * If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty. If you think you will need to make periodic payments to the IRS over the year to avoid the penalty, here are some pointers: • Payments are due quarterly. The payment dates are: o 1st Quarter: 4/15 o 2nd Quarter: 6/15 o 3rd Quarter: 9/15 o 4th Quarter: 1/15 of the following year. Should any of these dates fall on a weekend, the Form 1040 ES payment is due on the next business day. • Add to withholdings. If it looks like your paycheck withholdings will be too low, adjust the amount withheld. One of the benefits of this approach, is that withholdings deducted from a paycheck are not date sensitive, while quarterly estimated payments made late can still cause an underpayment penalty. • Front load payments. Often it is hard to project your income if you own a small business. If possible, pay a little extra in the first or second quarter to avoid the underpayment penalty exposure by paying the estimated payments later in the year. If you have not already done so, please call to help assess your situation.
Posted on: Tue, 29 Apr 2014 14:45:58 +0000
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