Making estimated payments are a great way to not owe so much when filing your taxes and to avoid the underpayment penalties.
There are two ways to avoid the underpayment penalty;
You can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:
- 90% of the total tax after credits for the current year, or
- 100% of the total tax after credits in the prior year
Of course it's hard to estimate 90% of the current year tax, so best to go with second option.
I hope you find this helpful!
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