Question

Problem 2-45 (LO 2-6) Charles and Joan Thompson file a joint return. In 2018, they had taxable income of $107.440 and paid tax of $15,516. Charles is an advertising executive, and Joan is a college professor. During the fall 2019 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $88.000 in 2019. They expect their 2019 tax liability will be $11,083, which will be the approximate amount of their withholding. Joan anticipates that she will work on academic research during the fall semester During September, Joan decides to perform consulting services for some local businesses. Charles and Joan had not anticipated this development. Joan is paid a total of $44.000 during October, November, and December for her work. Use the appropriate Tax Rate Schedules Required: a. What estimated tax payments are Charles and Joan required to make, if any, for tax year 2019? Estimated tax payments required b. Do you anticipate that the Thompsons will be required to pay an underpayment penalty when they file their 2019 tax return? Assume that Charles and Joan made the estimated payment as determined in requirement a O No Yes

Answer 1

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Answer are highlighted in yellow: Solution: $ 4,433 Answer: a) Explanation: As per Estimated tax harbor rule, Taxpayers with AGI less than $ 150K can avoid an underpayment penalty if their withholdings and estimated tax payments smaller of one of the following two safe harbors: 1) 90 % of their current tax liability 2) 100% of last year tax liability $ 18,681 $ 15,516 Current year tax - 2019: Estimated taxable income (88000+44000) Tax - (9086)+(132000-78950)*22% 90% of Current year tax (20757*90%) 132000 20757 18681 Small tax liability is Less: Tax withheld Estimated Tax payment required $ 15,516 $ 11,083 $ 4,433 Answer: b) No