This is a constant issue for business owners and independent contractors. You’re required to pay the IRS quarterly, or you get hit with an expensive underpayment penalty. People often increase their income due to cashing in an investment or simply generating more income, but they fail to make adequate estimated tax payments. The underpayment penalty is also common with recently retired folks whose payroll income is replaced by pension and Social.
Here are two simple cures to avoid underpayment penalties:
- As long as your payments to the IRS are equal to or exceed 90% of your current year’s tax liability, you will meet the safe harbor amount and avoid an underpayment penalty.
- In the alternative, choose a safe harbor amount that is calculated based on the tax liability you owed in the previous tax year. As long as your current year’s estimated tax payments are equal to or exceed 100% of the amount you paid the IRS the previous tax year, you will meet the safe harbor amount and avoid an underpayment penalty.
If you are already facing an underpayment penalty or other tax problem with the IRS, it may not be too late to avoid forking over your hard earned money to the IRS.
Call Faith Firm and let’s discuss how to resolve your tax issues. Or get the free book, How to Get Tax Forgiveness.