Sarah, a self-employed graphic designer, pays quarterly estimated federal income taxes. She wants to make sure her estimates are on target for 2016.
It can be unsettling if you don’t know where you stand with your taxes. When Sarah files her taxes next April, she doesn’t want to be charged a penalty for underpayment.
If Sarah’s quarterly estimated tax payments total at least 90% of her 2016 tax liability, an underpayment penalty generally won’t apply. Alternatively, Sarah may base her 2016 estimated taxes on her 2015 tax liability. If she uses this method, she should pay either:
- 100% of the tax shown on her 2015 return if her adjusted gross income (AGI) was $150,000 or less ($75,000 if married filing separately), or
- 110% of the tax shown on her 2015 return if her AGI was more than $150,000 ($75,000).
A tax projection before her next estimated payment is due (September 15) would give Sarah a much clearer picture of where she stands and allow her to make any adjustments in her estimates. A detailed review of her tax situation could also shed light on the ways Sarah might reduce her overall taxes for the year.
Taking the time now to review your tax situation can help ensure that your tax planning is on the right track.
Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.
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