Question 1

A taxpayer is subject to the safe harbor rules for estimated tax payments. Their Year 1 Adjusted Gross Income (AGI) was $160,000, and their Year 1 tax liability was $30,000. For Year 2, they project a tax liability of $40,000. To avoid the underpayment penalty for Year 2 without regard to the annualized income installment method, what is the minimum total estimated tax payment required?

Accepted Answer

Check AGI. If > $150k, prior year safe harbor is 110%. Compare 110% of Prior Year Tax vs 90% of Current Year Tax. The lesser is the required amount.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using 100% of prior year tax instead of 110% for high income earners.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 4

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