http://irstaxreliefsite.info/what-determines-if-you-owe-interest-on-your-taxes/ Individual & Small Business Tax Advice Wed, 21 Jul 2010 17:19:36 -0400 http://wordpress.org/?v=2.8.5 hourly 1 http://irstaxreliefsite.info/what-determines-if-you-owe-interest-on-your-taxes/comment-page-1/#comment-890 Jesse Fri, 05 Feb 2010 15:48:40 +0000 http://irstaxreliefsite.info/what-determines-if-you-owe-interest-on-your-taxes/#comment-890 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. 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.

]]> http://irstaxreliefsite.info/what-determines-if-you-owe-interest-on-your-taxes/comment-page-1/#comment-891 the tax lady Fri, 05 Feb 2010 15:48:40 +0000 http://irstaxreliefsite.info/what-determines-if-you-owe-interest-on-your-taxes/#comment-891 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. 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.

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