Question

Year	Taxes Payable	Amounts Withheld at source
2018	$82,000	$79,000
2019	76,000	70,200
2020 (Estimated)	63,000	59,000

Required (9 marks, 15 minutes)

1) Calculate the net tax owing for each year.

2) Based upon (1) above, indicate if Mr, Seinfeld will be required to make installments for the 2020 taxation year? Indicate why by outlining the numbers that meet/do not meet the requirements.

3) Indicate the quarterly payments under the 3 methods of calculating installments (if installment amount are the same, just do the calculation once) (i.e. $1,000 /quarters)

4) Which method do you recommend? Why? (brief)

Answer 1

1) 2018: Net tax owing = 82000-79000 = $3000

for 2019: 76000-70200= $5800.

For 2020, it is estimated that Mr. Seinfeld will be owing $ 4000 of tax (63000-59000).

2) From above, it is clear that Mr. Seinfield will be required to make installment of $4000.

3)Three methoad od calculating installments include:

1. No Calculation Option:

March 2020: 3000/4= 750

June 2020: 3000/4= 750

Sept 2020: (5800-1500)/2= 2150

Dec 2020: (5800-1500)/2= 2150

Total= 750+750+2150+2150= $5800

2. Prior-year option:

5800/4= 1450/quarter for 2020

3. Current-year Option:

4000/4 = 1000/quarter.

4) I would recommend the current year method as his income will be less than the previous incomes in 2018 and 2019. so the installments that he would have to pay per quarter will be less by current year option method as compared to the first two methods. So he should choose the third method.