Thanks to everyone who was on our School of Tax Strategy coaching call last night. We had numerous great questions and a great discussion. I promised to blog about one of the questions to give some clarification.
Q. I know that I have a choice for basing my estimated payments either on last year's tax or this year's tax. Can I change my decision in the middle of the year? In other words, if I base my first two estimated payments on the current year's tax liability, can I then switch to using last year's tax liability for the remaining payments and still avoid any penalty?
A. Effectively, you can change, as the required annual payment is the lesser of last year's tax or 90% of the current year's tax liability. But beware of the exceptions to the option for using last year's tax. If your adjusted gross income is above $150,000, you have to pay 110% of prior year to meet that exception.
Warmest regards,
Tom