Federal Tax Procedures: Penalties

Question 1

A corporation that anticipates a year-end tax bill of $500 or more ($1000 for individuals)

Answer 1

must estimate its income tax liability for the current tax year and pay four quarterly estimated tax installments during that year

Question 2

When is the predicting year exception not available?

Answer 2

If the prior year was less than 12 months or there was no tax liability in the prior year

Question 3

If the Internal Revenue Service is forced to seize an individual’s weekly paycheck in order to pay past-due taxes owed by the individual

Answer 3

the individual has the legal right to keep an amount of weekly income equal to the individual’s standard deduction and allowable personal exemptions divided by 52

Question 4

Individuals may generally avoid the penalty for failure to pay estimated tax for 2015 by

Answer 4

1) paying at least 90% of the tax shown on the current year’s return,
2) paying 110% of the tax shown on the prior year’s return (for individuals with AGIs of more than $150,000 in the previous year), or
3) paying installments on a current basis under an annualized income installment method. An individual may not use the 100%-of-prior-year’s-tax safe harbor if the prior year was not a 12-month period or if the individual did not file a return for such preceding taxable year.

Question 5

effective for months beginning after December 31, 1999, if the taxpayer is an individual who filed the tax return in a timely manner, including extensions

Answer 5

the 0.5% penalty rate is reduced to 0.25% for any month in which an installment agreement is in effect