Question

Jim has year 20X1 tax liability of $39,000. He estimates that 20X2 tax liability will be $48,000. Year 20X1 AGI was $175,000. Year 20X2 withholdings from wages will be $28,000. What amount of estimated tax payment must Jim make each quarter to not incur an underpayment penalty for 20X2?

a. $5,000

b. $2,750

C. $3,725

d. $3,800

e. None of the above

Answer 1

Answer:- The correct option is d $3,800

Working:-

1) 100% of previous year tax liability (and for individuals having AGI greater than $150000 than 110%)

in this case AGI is $175,000 so we have to take 110% of previous year liablity

= 110% *39,000

= $42,900

2) 90% of current tax liability (48,000*90%)=$43,200

Jim withholding does not equal or exceeds $42,900 or $43,200, so Jim has to increase his estimated payment or withholding in the year to avoid penalty.(43,200-28,000)=$15,200 per year or $3,800 per quarter