Question

1. Samantha is self-employed. She had a tax liability in 2014 of $17,000.

For 2015, her business has grown and Samantha projects a 2015 tax liability of $31,000.

If Samantha makes timely quarterly installments of estimated taxes of $1,500 or she will NOT be subject to underpayment penalties.

True or False?

2. If a taxpayer's AGI is over $150,000 in 2015, he must make estimated tax payments for 2016 that are based on 110% of his 2015 tax liability in order to meet the estimated tax "safe harbor" and avoid an underpayment penalty.

True or False?

Answer 1

1

Samantha should pay at least 100% of 2014 tax liability or 90% of 2015 taxes in estimated taxes to avoid penalty.

2015 estimated taxes paid = 1,500 X 4 = $6,000

90% of 2015 tax = 31,000 X 90% = $27,900

She neither paid 100% of 2014 tax that is $17,000 or 90% of 2015 tax that is $27,900, thus, she is liable for estimated tax penalty.

Given statement is FALSE

2

As AGI is over $150,000 taxpayer should make 110% of previous years tax that is of 2015 tax to avoid penalty.

Given statement is TRUE