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Renton Technical College *

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179

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Accounting

Date

Feb 20, 2024

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1

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_ T Sam's year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. For year 3, Sam expects taxable income of $250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of year 3 estimated tax payments that Sam can make? $33,000 Answer: Feedback Based on answering correctly To avoid penalties, a taxpayer who owes $1,000 or more in tax payments after withholdings will need to have paid in the lesser of: 90% of the current year's tax ($50,000 x 90%) = $45,000, or 100% of the previous year's tax ($30,000 x 100%) = $30,000 However, if the taxpayer had adjusted gross income in excess of $150,000 in the prior year, 110% of the prior year's tax liability is used to compute the safe harbor for estimated payments. (Previous year's tax $30,000 x 110% = $33,000). General Feedback You need the lesser of current year tax (x 90%), or previous year's tax (x 110%, in this case)
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