What Determines If You Owe Interest On Your Taxes?

Fri, Feb 5, 2010

I owe about $6,800 in taxes this year (2008). And my tax bill says I now owe $7,062 for taxes due plus $241 in interest. The taxes I owe are based on interest/dividend income. I didn’t think you had to pay a penalty for not making quarterly payments on this type of income. I thought only businesses or self-employed had to make quarterly payments. Can someone please explain why I owe interest?

How Do I Calculate State Taxes On Interest Income? I am in the military and a TX resident (no...
Sue An Accountant Who Filed Your Taxes Incorrectly When Penalty Is Involved? An accountant who handled taxes did not report the taxable...
What Determines My Taxes Owed For The Year? This year I owe 1300 and I was wondering if...
When Making Estimated Tax Payments To The Irs, Do I Need To Include An Amount To Cover Self-employment Taxes? I am a self-employed consultant as of this year, so...
Defining Taxable Business Income There are tons and tons of separate and different (but...

Related posts brought to you by Yet Another Related Posts Plugin.

Determines, Interest, Taxes, What, Your

This post was written by:

admin - who has written 164 posts on IRS Tax Relief.

Contact the author

2 Responses to “What Determines If You Owe Interest On Your Taxes?”

Jesse Says:
5. February 2010 at 10:48 am

This “interest” you are talking about is called an underpayment penalty. In general, you must either pay in 90% of your current year tax liability or 110% of prior year tax liability in order to prevent an underpayment penalty for those who are subject to this.
One way you can reduce this if you are subject to an underpayment penalty would be to annualize the SE income if you had a windfall in the 2nd, 3rd or 4th quarter. Generally, income is treated as being earned equally throughout the year.
This would be done on form 2210, Schedule AI.
You can prevent this in 2008 by making protective quarterly estimate that equal 110% of your 2007 tax liability.
I hope that helped.

the tax lady Says:
5. February 2010 at 10:48 am

If you are writing a check for more than $1000, then you are required to pay in quarterly. The IRS assumes the income is received evenly and charges you 8% for underpayment.
if all of the income is really at the end of the year, use form 2210 to show this, but even then the first $6000 was due by 1/15/2008 and missed that date as well.

Jesse Says:
5. February 2010 at 10:48 am
This “interest” you are talking about is called an underpayment penalty. In general, you must either pay in 90% of your current year tax liability or 110% of prior year tax liability in order to prevent an underpayment penalty for those who are subject to this.
One way you can reduce this if you are subject to an underpayment penalty would be to annualize the SE income if you had a windfall in the 2nd, 3rd or 4th quarter. Generally, income is treated as being earned equally throughout the year.
This would be done on form 2210, Schedule AI.
You can prevent this in 2008 by making protective quarterly estimate that equal 110% of your 2007 tax liability.
I hope that helped.
the tax lady Says:
5. February 2010 at 10:48 am
If you are writing a check for more than $1000, then you are required to pay in quarterly. The IRS assumes the income is received evenly and charges you 8% for underpayment.
if all of the income is really at the end of the year, use form 2210 to show this, but even then the first $6000 was due by 1/15/2008 and missed that date as well.

Click here to cancel reply.

IRS Tax Relief