I have a question regarding the underpayment penalty for taxes. I understood that I could avoid the tax penalty by paying at least 110% of my last year's taxes shown. I specifically made estimated tax payments last year, so that I would pay this 110% amount, because I knew the taxes I owed this year would be significantly higher. Why did TT give me an underpayment penalty?
I asked a TT expert for help on how to estimate these taxes, and paid quarterly estimated taxes accordingly. (FYI, I did the same estimated payments the year before, and did not get an underpayment penalty.) The payments were NOT equally distributed over the 4 quarters - they were calculated using the amount of taxes withheld on 3/31, 5/31, 8/31, and 12/31.
When I look at form 2210 (generated by TT), it calculated 110% of my last year's tax, and entered it on line 9. However, it compares it to the "Withholding taxes" on line 6, which also specifically states "Don't include estimated tax payments".
Because the amount on line 6 is less than line 9, TT then claims that I owe a penalty.
What was the purpose of my estimated tax payments if it doesn't take it into consideration?
Do I need to follow the TT questions for Underpayment Penalty, to fill out Form 2210? And if so, do I need to use the annualized income installment method? Which method will take into account my estimated tax payments AND the fact that the payments are equal to 110% of my last year's taxes owed?
