To comply with Internal Revenue Service Circular 230, we inform you that any tax advice contained on this website is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.
If you have owed or come close to owing an underpayment penalty to the IRS in past few years, you may want to assess your tax liability for the year. It is not too late to eliminate or mitigate your risk of owing an underpayment penalty for 2013.
1. The general rule is you won’t have to pay a penalty if any of the following situations apply to you:
a. your withholding and timely estimated tax payments are at least as much as your taxes due the prior year (110% of last year’s tax if your prior year AGI was more than $150K/$75K for married filing separately), or
b. your tax balance due is less than 10% of your total tax bill for the year
c. your total tax minus withholding is less than $1000
d. you did not have any tax liability the prior year.
2. You may have to pay a penalty if the total of your withholding and estimated tax payments is smaller than the lesser of:
a. 90% of your current year tax, or
b. 100% of your prior year tax (110% if your AGI in prior year was over $150K/$75K for MFS).
3. Remember that you might still be assessed an underpayment penalty if you owed taxes in one payment period but paid them later in the year, since the penalty is calculated separately for each period.
If you think you might be at risk of owing an underpayment penalty, contact us today to determine what you owe! Even if you make a late payment, the sooner you make that payment, the lower your overall penalty will be.