Tax Deduction Guide
February 9th, 2009
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Question: Underpayment tax penalty in 2007 and 2008 estimated tax??
We had a one-time situation for our 2007 taxes which led to an underpayment tax penalty and we were given forms for our 2008 estimated tax payments (above our normal deductions). If we know for a fact that we will not be in the same situation for 2008, can we just not make those estimated payments? Are they just guides or will the IRS actually expect those estimated payments and penalize us if we do not?
Answer: No! The ES coupons are automatically generated by the tax software and assumes that your income will be the same. If your income is less, you won’t owe the taxes and don’t need to make ES payments. Your tax preparer probably just included them with your tax return stuff. (We sometime do that too as a precaution.)
The rule to be “penalty proof” for 2008 is make sure you have paid/withheld 100% of of the 2007 liability or 90% of the 2008 liability. http://www.irs.gov/taxtopics/tc306.html
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