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the easiest rule to comply with prepayment requirement to avoid these penalties.
withholding and timely estimated tax payments must equal or exceed 100% of your prior year's tax. That jumps to 110% if your prior year adjusted gross income is over $150,000 ($75,000 if married filing separately in the prior year)
Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.
"The safest option to avoid an underpayment penalty is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. If you satisfy this test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.
If you expect your income this year to be less than last year and you don't want to pay more taxes than you think you will owe at year end, you can choose to pay 90 percent of your current year tax bill. If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a safety net.
If you expect your income this year to be more than your income last year and you don't want to end up owing any taxes when you file your return, then make enough estimated tax payments to pay 100 percent of your current year income tax liability."
For more information, please read this TurboTax Help article: Estimated Taxes: How to Determine What to Pay and When
the easiest rule to comply with prepayment requirement to avoid these penalties.
withholding and timely estimated tax payments must equal or exceed 100% of your prior year's tax. That jumps to 110% if your prior year adjusted gross income is over $150,000 ($75,000 if married filing separately in the prior year)
Does TurboTax automatically calculate the estimated payments? The figures on the generated vouchers just don't seem to add up.
If there is a Federal refund due, and I choose to apply it to next year's taxes, do I deduct that amount from the quarterly estimates (divided equally)? Or is it best to just accept the refund. TurboTax does not modify the vouchers for either selection (refund v. apply to).
There is not a "best". It depends on how you want to handle your cash flow.
As Tom and Mike say, aim for a target of 110% depending on your income.
If you apply the refund to next year, apply it to the first quarter as you make estimates.
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