Question

For 2018, all of the following situations qualify as exceptions to the penalty for underpayment of estimated tax except

A. Total tax shown on the return minus withholdings is less than $1,000.

B. Estimated tax payments were 105% of that shown on the 2017 return, and last year’s AGI was $160,000.

C. A U.S. citizen paid no estimated tax because he had no tax liability in the preceding year and the year was a 12-month period.

D. The taxes shown as owed on the return are no more than 10% of the total 2018 tax, all required estimated tax payments were made on time, and 2017 AGI was $100,000.

Answer 1

A penalty will be levied on individual for not paying enough estimated tax . If an individual has an underpayment of estimated tax , they may be required to pay penalty .

Exceptions to penalty;

1. Total tax liability is less than $ 1,000

2. Tax paid either 100% of the last year's tax or 90% of this year's tax.

3.Tax payer owed some tax last year, and he had that amount or more of tax withheld from this year. However, if adjusted gross income (AGI) was more than $150,000 — or $75,000 if married filing separately — he must pay at least 110% of last year’s tax.

Answer;

In option B, Estimated tax payments were 105% of that shown on the 2017 return, and last year’s AGI was $160,000 ( More than $ 150,000) . Actual estimated tax to be paid is 110% tax of the year 2017.

Therefore the Option B is not an exception to avoid penalty of underpayment of Estimated Tax.