Harmon, Inc. was incorporated and began business on January 1, 2020. Its tax liability for 2020 was $36,000. Its tax liability for 2021 was $50,000. Which of the following is a correct statement concerning the payment of estimated taxes for 2021?

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Quizplus · Accepted Answer

Based on the safe harbor rule, to avoid an underpayment penalty for 2021, Harmon must pay either 100% of the prior year's tax liability ($36,000) or 90% of the current year's tax liability ($45,000). Therefore, Harmon must pay at least ($36,000 x 90%) = $32,400 in estimated taxes for 2021. Option A requires a total payment of $50,000, which is more than the safe harbor amount. Option C is not correct because taxes owed for a given year must be paid by the tax deadline for that year, which is March 15 for corporations. Option B allows Harmon to pay $9,000 on each of the four due dates throughout the year, and the remaining balance of $14,000 by April 15, 2022, which will satisfy the safe harbor requirement.