Question

This year, Paula and Simon (married filing jointly) estimate that their tax liability will be $207,500. Last year, their total tax liability was $175,000. They estimate that their tax withholding from their employers will be $180,750.

a. Are Paula and Simon required to increase their withholdings or make estimated tax payments this year to avoid the underpayment penalty?

    

Yes

No

b. By how much, if any, must Paula and Simon increase their withholding and/or estimated tax payments for the year to avoid underpayment penalties?

    

Answer 1

Solution:

Given data,

Paula and Simon (married filing jointly) estimate that their tax liability will be $207,500.

Last year, their total tax liability was $175,000.

They estimate that their tax withholding from their employers will be $180,750.

Solution:

a) : Underpayment punishment can be kept away from if retentions and assessed charge installments

Are equivalent to or more than

b) :

1) : 90 % * current expense risk

= 90% * $207,500

= $186,750

Or then again

2) : 100 % earlier year impose risk/110% * past expense obligation if the AGI > $150,000 For this situation it will be 110% * $175,000

= $192,500

Since the retention was under $186,750, they should expand the retentions to dodge underpayment punishment.

Amount of increase = $186,750 - $180,750

= $6,000