Last year, Mr. Tyker's AGI was $182,800, and his total tax liability was $51,650. This year, his total tax liability is $65,440. Compute the minimum amount of current year tax that Mr. Tyker had to prepay (withholding and estimated payments) to avoid an underpayment penalty.

Question

Quizplus · Accepted Answer

To avoid an underpayment penalty, taxpayers must either pay 100% of their previous year's tax liability or 90% of their current year's tax liability. In this case, 100% of Mr. Tyker's previous year's tax liability is $51,650. Therefore, he must have pre-paid at least $51,650 to avoid an underpayment penalty. However, his total tax liability this year is $65,440, meaning he had to prepay an additional $13,790 ($65,440 - $51,650). The minimum amount he had to prepay to avoid an underpayment penalty is 90% of his current year's tax liability, which is $58,896 ($65,440 x 0.9). Since he had to prepay at least $51,650 and the only answer option greater than $51,650 is $58,896, the correct answer is C.

Last Year, Mr