How to Avoid Withholding Penalties
Underpaying your tax liability can result in unnecessary penalties. Two simple ways to avoid the penalty are:
- Pay 100-110% of the tax liability shown on the return for the prior year, depending on your adjusted gross income for that year; or
- Pay at least 90% of your current year tax.
It is hard to know exactly what your tax liability will be for the current year so often times, the first safe harbor is the easiest benchmark to use. However, this becomes challenging when the prior year tax liability is abnormally high due to a big financial event. We can assist you with determining what your estimated tax payments need to be.