Question

i will to understand the process.

4. 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

Please refer the following image for the solution:  

Correct option is D $3,800 Explanation 1) 100% of previous year tax liability (and for individuals having AGI greater than $150,000 than 110%) In this case Jim's AGI of year 20X1 is $175,000 so we have to take 110% of previous year liablity Previous year tax liability $ 39,000 $39,000 * 110% $ 42,900 2) 90% of current tax liability Current year tax liability $ 48,000 $48,000 * 90% $ 43,200 Jim's withholding should not exceed either $43,200 or $42,900 So, Jim has to increase his estimted tax payment to not incur penalty $43,200 - $28,000 $ 15,200 per year $15,200/4 per quarter $ 3,800 per quarter