1040 Penalty Exception

Jan 02, 2008 1 Replies

Went to instructions for 1040 to check on the requirements for paying estimates in order to avoid penalty.



The wording is confusing to me -- the exception has words to the effect of no penalty if paid 110% (non-farmer) on time and then a clause concerning gross income on '06 form. It seems to imply the exception only applies for incomes that previously exceeded that limit--is that really so?



Question arises in an advisor to self-employed son advised him to not pay estimated's this year because, as I understand it, his last year's liability was so little. This year he has a decent (~$50k) gross but has a cash flow problem at the moment. I was suggesting he should make an estimated fourth quarter that was 110% to avoid penalty but now I'm not sure that would have any effect????



Does this cover self-empolyment portion as well as income as well?



I'm the farmer and have paid estimated's all along, so this is a new arena to me...


First, the 110% applies only if his AGI was over $150K last year. If \he pays this yer the amount of his taxes last year, in equal installments or more, he wount incur a penalty.. It isn't that the

110% only applies, it's that you wouldn't pay that much if your income (taxes) is less than last year.

This year, (2008) he should pay in 1/4 of l2007 total taxes each quarter.

Yes includ SE tax in last year's total tax, and it covers your installment liability for all taxes in 2008 inluding SE tax.

ed

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