My daughter works full time (with withholding, etc.) but has started up a small business on the side. Is there some number (either specific dollars or other metric) where she should start worrying about estimated taxes? Don't want any nasty surprises in APril.
When her withholding will not cover the amount of the prior year's tax, or 90% of the current year's tax (whichever is less or these "safe harbors") she will owe a penalty for the shortage, computed at 8% simple interest on the underpayment for the time it was underpaid. Unfortuantely when she discovers this inadequatacy it is too late to avoid a penalty by paying an "installment " or "estimated payment" so she should increase her withholding appropriately (to meet one of the "safe harbors") because withholding is considered paid evenly throughout the year, but an estimate payment is not. Note the last year's tax safe harbor has nothing to do with how much she'll owe next April, but she's got at least 3 months to figure it out. ed
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