A taxpayer had AGI of 60,000 in Year 1 and tax liability of 0,000. In Year 2, they expect a tax liability of 0,000. To avoid the underpayment penalty for Year 2 via the Safe Harbor rules, what is the minimum estimated tax payment required?

Answer options:

0,000

1,000

6,000

0,000

How to approach this question

Safe Harbor: Lesser of 90% Current Tax or 100% Prior Tax. EXCEPTION: If Prior AGI > 150k, use 110% Prior Tax.

Full Answer

B.1,000✓ Correct

Since the taxpayer's AGI exceeds 50,000, the prior year safe harbor is 110% of the prior year's tax liability. 110% of 0,000 = 3,000. This is less than 90% of the current year tax (6,000), so 3,000 is the minimum.

Common mistakes

Using 100% of prior year tax despite high AGI.

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