Your client wants to avoid any penalty for underpayment of estimated taxes by making timely deposits. Determine the amount of the minimum quarterly estimated tax payments required to avoid the penalty. Assume your client's adjusted gross income last year was $140,000. $$\begin{array} { | l | r | }
\hline \text { Last year's tax liability } & \$ 40,000 \
\hline \text { This year's estimated total tax } & 44,000 \
\hline \text { Taxes to be withheld for this year } & 9,000 \
\hline
\end{array}$$
A) $7,650
B) $7,750
C) $8,750
D) $11,000

Question

Your client wants to avoid any penalty for underpayment of estimated taxes by making timely deposits. Determine the amount of the minimum quarterly estimated tax payments required to avoid the penalty. Assume your client's adjusted gross income last year was $140,000. $$\begin{array} { | l | r | } 
\hline \text { Last year's tax liability } & \$ 40,000 \
\hline \text { This year's estimated total tax } & 44,000 \
\hline \text { Taxes to be withheld for this year } & 9,000 \
\hline
\end{array}$$
A) $7,650
B) $7,750
C) $8,750
D) $11,000

Quizplus · Accepted Answer

To avoid a penalty, the client should pay the lesser of 90% of this year's tax ($44,000 * 90% = $39,600) or 100% of last year's tax ($40,000). After withholding $9,000, the remaining amount is $31,000. Dividing $31,000 by 4 gives $7,750.

Your Client Wants to Avoid Any Penalty for Underpayment of Estimated