You can avoid an
underpayment penalty if all of your tax payments for the year--including withholding and tax credits--cover your ultimate tax bill, or at least go far enough that you come up short by less than $1,000.
California law currently has a 20 percent
underpayment penalty for understatements in excess of $1 million, which in many cases results in taxpayers overpaying their taxes to avoid the
underpayment penalty.
An estimated tax
underpayment penalty may further increase the taxpayer's bottom-line shock.
Another section of the bill would limit the reasonable cause and good faith exception to the existing
underpayment penalty for public corporations or corporations with gross receipts in excess of $100 million.
First, it would impose a strict liability
underpayment penalty of 30 percent on transactions lacking economic substance.
First, the
underpayment penalty g increases the benefits of tax evasion for a taxpayer with high income and a low prepayment because successful tax evasion evades both tax and the interest on the underpayment.
For calendar year 2001, this S corporation need only make estimated tax payments of $13,300 (2000 taxable income times 2001 tax rate) to qualify for the safe harbor and avoid an
underpayment penalty.
The
underpayment penalty will not apply if the taxpayer's total tax liability is less than $500 or he has paid in at least 90% of the current year's tax or he has paid in an amount equal to at least 100% of the prior year's tax if a return was filed for that year.
Any tax not paid during the year (either through federal income tax withholding from an employer or estimated tax payments) is subject to an
underpayment penalty.
California law has a 20 percent
underpayment penalty for understatements in excess of SI million which in many cases results in taxpayers to overpay their taxes to avoid the
underpayment penalty.
In addition, the courts upheld a 20% substantial
underpayment penalty under section 6662(a).
