topic Re: Penalty in Get your taxes done using TurboTax

Penalty

vikrant-kothari — Tue, 19 Nov 2024 19:51:26 GMT

Can I avoid tax penalty if I pay 110% of taxes I owed last year in withholdings and estimated taxes even if my tax obligation is much bigger this year? If I get a large profit in a K1, will that cause me a tax penalty since it will increase my tax liability by a lot?

Re: Penalty

Bsch4477 — Tue, 19 Nov 2024 20:16:12 GMT

Yes. Here are the rules.

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Re: Penalty

vikrant-kothari — Tue, 19 Nov 2024 20:32:29 GMT

Thanks. A followup question on the rules posted. it says that I may still owe a penalty if estimated payment for one period is less than 25% of the amended estimated tax. I am not even sure what that means. If my K1 is coming next year, how can I count that in my estimation? And if I make huge money in December (say huge bonus) then the best I can do is to up my Estimated Taxes in Jan. But looks like that can also cause penalty for me?

Re: Penalty

Bsch4477 — Tue, 19 Nov 2024 21:01:55 GMT

Delete

Re: Penalty

Bsch4477 — Tue, 19 Nov 2024 21:01:09 GMT

Yes. You can avoid the unequal quarterly income issue by paying the appropriate amount of estimated tax to cover tax for your K-1 before January 15, 2025.

Re: Penalty

Mike9241 — Wed, 20 Nov 2024 06:10:10 GMT

under the 110% rule, 27.5% (1/4) must be paid each tax period

they are 3/31, 5/31,8/31 and 12/31

for withholding you can use actual for each period or 1/4 of the annual total.

for estimated tax payments, they must be paid on or before the due date for each period. thus 4/15, 6/15, 9/15, and 1/15 of following year.

the 110% rule only applies if your prior year adjusted gross income was over $150K ($75K if married filing separately) otherwise it's 100%

https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty

this statement is not entirely correct

Your filed tax return shows you owe less than $1,000

in truth, only withholding is applied to your tax liability to determine if you owe this amount or less.

you can use the annualized income installment method. however here's something I found about whn S-corp income is deemed earned

Corporations: Under Secs.1366(a)(1) and 1377(a)(1), S corporation income or loss is passed through to shareholders on a daily basis. For estimated tax payment purposes, IRS Letter Ruling 8735014 states that S shareholders must take into account their pro rata share of the S corporation's actual taxable income for any S corporation year ending with or within their tax years to the extent that taxable income or loss was attributable to the months in the S corporation's tax year that ended on or before the due date of the payment period. The shareholder computes the amount of the S corporation's income or loss for a given period as if the S corporation's tax year ended on the last day of the payment period.

https://www.taxnotes.com/research/federal/irs-private-rulings/letter-rulings-technical-advice/individual-who-does-not-receive-information-about-an-s-corporations/1j486?highlight=8735014