Question

Trudy's AGI last year was $200,000. Her Federal income tax came to $65,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $300,000, with a projected tax liability of $50,000, all to be paid through estimates.

Note: Ignore the annualized income method.

a. Trudy's total estimated tax payments are $______ under the current-year method and $__________ under the prior-year method.

b. Assume instead that Trudy's AGI last year was $100,000 and resulted in a Federal income tax of $20,000. Her total estimated tax payments are $_______ under the current-year method and $___________ under the prior-year method.

Answer 1

Solution:

Answer a :

Current-year method :

Tax payment = Tax estimated * Percentage payable

= $50,000 * 90%

= $45,000

Prior-year method :

Tax payment = Tax paid * Percentage payable

= $65,000 * 110%

= $71,500

Trudy's total estimated tax payments are $45,000 under the current-year method and $71,500 under the prior-year method.

Answer b :

Current-year method :

Tax payment = Tax estimated * Percentage payable

= $50,000 * 90%

= $45,000

Prior-year method :

Tax payment = Tax paid * Percentage payable

$20,000 * 110%

= $22,000

Assume instead that Trudy's AGI last year was $100,000 and resulted in a Federal income tax of $20,000. Her total estimated tax payments are $45,000 under the current-year method and $22,000 under the prior-year method.