Tax Planning: Impact of Estimated Tax Payment Rules on Planning

Question 1

General Safe Harbor Rule

Answer 1

To avoid any penalty for underpayment of estimated taxes, the taxpayer must pay in 100% of the prior-year tax paid or 90% of the current-year tax due

Question 2

Special Safe Harbor Rule

Answer 2

If the taxpayer had taxable income in the previous year in excess of $150,000, then the safe harbor for avoiding underpayment penalties is 110% of the prior-year tax

Question 3

Installment payments are required if the estimated tax is $500 or more and are due by

Answer 3

the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s tax year

Question 4

IRS Publication 225 provides that a qualified farmer is a taxpayer whose gross income for 2015 was at least two-thirds from farming. The qualified farmer can choose either of the following options for her 2015 tax and not be penalized for failure to pay estimated tax

Answer 4

1) Make the required annual payment by January 15, 2016 of either
a) 66.67% (.6667) of the total tax for 2015 or
b) 100% of the total tax shown on the taxpayer’s 2014 return (the return must cover all 12 months)

2) File Form 1040 by March 1, 2016, and pay all of the tax due