There are IRS guidelines on when you will be charged a penalty or interest.
You must make timely payments. A large payment towards the end of the year is not timely. The IRRS expects a payment each quarter.
Please see if Estimated taxes are right for you.
In addition, you can avoid the penalties with these guidelines.
- The amount of tax you paid during the tax year is less than 90% of the tax that you owed for the current year.
- The amount you paid during the tax year did not equal 100%, (110% for higher incomes) of your taxes owed the prior year.
- The IRS also says you can probably avoid the penalty if the amount you owe is less than $1,000, after subtracting withholding and refundable credits.
"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%. Underpaid taxes also accrue interest at a rate that the IRS sets annually."
To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.
Underpayment of Estimated Tax by Individuals Penalty
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