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How to avoid the underpayment tax penalty



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hi everyone this is Christine from Teh financial coaching where I coach people

to financial freedom so for today's topic I wanted to talk to you about

how to avoid the underpayment tax penalty. So in my

opinion I don't see anything wrong in owing the IRS some money

I actually prefer that over getting a refund. so why is that? it's because you

owing the IRS money means you got a 0% interest-free loan from the

government versus if you get a refund you gave a 0% interest-free loan to the

government that was rightfully yours so the only thing I would want to

avoid with owing the IRS money is to avoid underpayment tax penalty. So there

are three ways to avoid the underpayment tax penalty. let me show you so the

first one is just for your federal income tax return so different

rules apply for different states so I'll just go over federal and then I'll

touch a little bit on California because I live in California so the first rule

is you want to owe less than $1,000 so that's the first rule the second one

is that you did not owe any taxes in the previous year so if you had a refund

last year or if for some reason your withholding was just right then you

won't owe an underpayment tax penalty or if you want to make sure your

withholding plus any estimate tax you paid on time this year is the smaller

of either ninety percent of the tax you will owe this year or a

hundred percent if your AGI is 150 K or less of the actual tax you owe

last year or 110% if your AGI is more than $150K or

75 K if you file married filing separately so that's another one the

things you lose out if you file a married filing separately so let me show

you so I think the easiest way and let's say you don't qualify

for any of this. what you owe is more than a thousand dollars or you had the

owed some taxes last year so the easiest way is to make sure that your

withholding it's gonna pay for hundred percent of your tax last year so you

have four more months ago of withholding you can control your withholding from

your paycheck or your estimated tax and make sure that you're gonna reach the

hundred percent of the actual tax from last year so how do you find out so

go to your 2018 tax return let's say your AGI so your AGI is line seven so

let's say your AGI was hundred forty thousand so it was less than one hundred

fifty thousand dollars so you make sure your withholding is paying four hundred

percent of your test last year so let's say your tax last year's ten thousand so

you just have to make sure that whatever you're withholding now is till the end

of the year is gonna pay for at least ten thousand dollars okay or it will be

eleven thousand dollars if your AGI is more than hundred fifty thousand dollars

so that's the easiest way to make sure that you are avoiding the underpayment

tax penalty so if you don't need help with figuring out your tough you know

your withholding I encourage you to go to your tax professional to make sure

that it is getting calculate correctly so and we hope you find that helpful and

I like my video or share if you do thank you have a good day