So many taxpayers get a letter from internal revenue service this year asking them to pay some additional tax and interest. Most of them never have this situation before and like to know what is underpayment penalty and how to Avoid this for next year
Underpayment penalty
You must pay at least 90% of the tax you owed for the current year or 110 % of the last year tax, what ever is smaller before December 31st on a timely manner.
How do I avoid this for next year?
Its very hard to find out what is 90% of current year until we do the tax, but it is very easy to calculate the 110% of last year tax liability.
If you are employed/Salaried person its very easy to adjust the withholding tax by submitting a proper W4 and if you are not sure what is the correct number of exemptions, get your accountant help and if you are expecting any additional income like bonus, Third party Sick Pay etc. make sure the employer deduct enough tax from the paycheck
We always noticed that most of the third-party sick pay and unemployment benefits are not deducting no tax or very less tax. We would recommend keeping the same or more income tax deduction on these payments to avoid the big tax Bill at the end.
If you are self employed person, its little hard to find out what will be your taxable income unless otherwise you use a professional to keep your books. If you are running a small business, I would recommend using our bookkeeping service to maintain your books Update all the time.
Bookkeepers will go thru your business bank statements and prepare the Profit and loss statement, Balance Sheet and Bank reconciliation on a monthly basis and that will help you to make the estimated payment of income tax to the IRS and State
Our Bookkeeping service starting $75 a month depends on how much transactions a month to enter and please call 630-663-1500 X 5 for more information
