Safe Harbor Rules For Estimated Taxes

Forum|Forum|1 year ago
December 15, 2024
1 reply
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Could someone clarify The Safe Harbor Rules?

Example

One pays 110% of the prior year's tax payment by year end.

What If?

What if the prior year's tax payment was $5,000.

What if this years income will be much higher and the tax due will be $50,000.

It seems there must be a limit on using a prior year's tax payment which was far lower then this year's payment will be.

Is there a rule or limit?

What am I missing?

Thanks in advance.

Best answer by rjs

There is no limit on eliminating the penalty by paying 110% of last year's tax. It doesn't matter how much higher your income is this year, or how much more tax you will have to pay.

VolvoGirl

Employee

It’s not on the tax payment but the prior year tax liability. If you do get a penalty on your tax return, You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

RomperAuthor

Thanks for the quick response

A am aware of the options to eliminate a penalty but I think the question remains.

I.e. Is there a rule or limit to paying the tax liability for the prior year when there is such a wide difference in the tax due for the current year?

rjsAnswer

Employee

There is no limit on eliminating the penalty by paying 110% of last year's tax. It doesn't matter how much higher your income is this year, or how much more tax you will have to pay.