My husband has a new business and we greatly underestimated his income for 2017. We owe more in Federal taxes that we can pay. I know we can apply for a payment plan with the IRS. We also have to make the estimated tax payment on 4/17/18 for the 1st quarter of 2018. My question is, my estimated tax payment would make a dent in the 2017 taxes I owe - it wouldn't completely cover it - but should I send this money towards the federal '17 tax bill, and get a payment plan for the remainder. And then save up to pay the estimated taxes and pay them late.
In this case I would be paying two tax payments late - so I am thinking I will pay the estimated tax payment in full, and then apply for a payment plan for the 2017 taxes owed.
I don't think there is one right answer here. There is certainly value in having your 2018 payments recorded on time and on track from now on and you definitely want to avoid owing taxes again for 2018 if you are going to need to be on an installment agreement for 2017.
Though, money wise, you are likely to accumulate more interest and penalties overall by putting the full amount of 2017 taxes on an installment agreement, then you will by missing one quarter of estimated tax payments (especially if you anticipate being able to make the remainder of the estimated payments). Also, estimated tax payments are just estimates - whereas your 2017 tax liability is a final obligation.
In my opinion, I would pay the 2017 taxes first. I will eliminate or reduce any interest and failure to pay penalties that would accrue if they aren't paid. That will leave you with more money to pay estimated 2018 taxes.
Even with an installment agreement, there is interest that will be charged and generally there is also a penalty of 1/2 of 1% per month (failure to pay penalty) on the unpaid 2017 taxes.
Also, as 2018 goes along, you may be able to accumulate some more money from your income and/or other sources to pay 2018 estimated taxes. Even if you don't pay or fully estimate the first quarter installment of 2018 ES taxes, if you make it up on the other quarterly installments, the penalty computed on Form 2210 may be quite small.
Also, you don't know for certain how the rest of 2018 will play out. It may be possible that an exception for 2018 might be met so there might not be a penalty for 2018?