Mickey, a calendar year taxpayer, was not required to file a 2011 Federal income tax return because his AGI was negative due to business losses.During 2012, his AGI is $120,000 and his tax liability is $10,000.To avoid a penalty for tax underpayments for 2012, Mickey must make aggregate estimated tax payments of at least:

Question

Quizplus · Accepted Answer

Mickey must make estimated tax payments for 2012 to avoid underpayment penalty. According to IRS rules, taxpayers must pay at least 90% of the current year's tax liability, or 100% of the previous year's tax liability (whichever is less) to avoid underpayment penalty.

In this case, Mickey's 2011 tax liability was zero because he was not required to file a tax return due to negative AGI. Therefore, he must pay 100% of his 2012 tax liability to avoid penalty, which is $10,000.

However, since the question asks for the minimum amount of estimated tax payment required to avoid penalty, we can use the 90% rule. Mickey must pay at least 90% of his 2012 tax liability, which is $9,000. Therefore, option B is the correct answer.

Mickey, a Calendar Year Taxpayer, Was Not Required to File