Question 1

An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2, the taxpayer expects an AGI of $200,000 and a tax liability of $45,000. To avoid the underpayment penalty for Year 2 without paying more than necessary during the year, what is the minimum required annual estimated tax payment?

Accepted Answer

Check the AGI threshold ($150,000). Since AGI > $150k, the safe harbor is the lesser of 90% of current year tax or 110% of prior year tax.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using 100% of prior year tax despite high income; calculating 110% of current year tax; failing to compare the two safe harbor options.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 5

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