Re: Underpayment Of IRS Estimated Taxes Penalty ?

On Jun 17, 9:11 am, "Paul Thomas" <paulthomas...@xxxxxxxxxxxxx> wrote:
"Robert11" <rgs...@xxxxxxxxx> wrote

In my 70's now, and not too sharp with this stuff anymore.

Just got a bill from the IRS stating that I underpaid my extimated taxes
last year, and they are billing me a penalty of $ 150.00

The underpayments was primarily, I guess, due to my cashing out a large
amount of Savings Bonds at the end of the year. I paid the taxes on the
interest O.K., but the IRS, it looks like, apportioned this amount among
the four quarters, and came up with this penalty.

Is this a likely "error" on their part ?

Nope. They don't know when during the year you earned that income. Use
Page 4 of Form 2210 to compute any underpayment penalty using the Annualized
Income method and submit that as part of your reply to the IRS as to why the
penalty (if any) should be less.

Happens often ?

Unfortunately the IRS isn't as smart as everyone thinks. They don't know
when during the year income is earned. It's up to you to tell them.

Worth contacting them about and seeing if they would negate it, or just
pay it and be done with it, in your opinions ?

See above.

--
Paul A. Thomas, CPA
Athens, Georgia

What did you base your 4 estimated payments on?. If you paid in 1/4
of year 2005's tax each quarter you don't owe a penalty regardless of
how much interest is involved. If you didn't pay that much, you only
owe a penalty on the difference between what you paid and 2005's tax
(if you paid relatively equal installments in 2006). It seems
unlikely you would owe $150 of penalty unless the interest was over
$7,500.
If that doesn't eliminate the penalty complete the Annualized
Income Method of form 2210 and you'll only owe a penalty of 8% of the
underpayment for the time from January 15 until you paid your taxes.

You can get a calculator to do this at www.edcosoft.com/qitc.html.
Use your 2006 1040 as a guide and fill in your tax status and 2006
year's tax information at the top, and then the amount of each other
item allocated to the 4 quarters.

Instead of paying any more installments, have enough withheld from
your RMD in December to pay either as much as last year's tax, or 90%
of the current year's tax, whichever is less (after deducting the
installments you already paid for this year).

ed

.

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