IRS Penalties

Now is the time of year to review your federal (and probably state) withholdings toward Tax Day in April 2008. Now you can do something about it or at least with an estimated tax deposit which is due January 15.

Pub. 17 states that we are safe from penalties/late payment fees if our withheld federal tax is equal to 90% of "expected" tax liability or 110% of our 2006 tax liability.

It's bad enough to pay taxes and I choose to avoid piling on penalties. It's not bad to owe in the spring but why face additional fees.

I collected our sources of withheld taxes so far. My last pay stub from my seasonal job, our payroll records for Bob's Chapter S Corporation, and his pension stub from November 1. I compared that total plus what will be withheld from his December 1 pension with our 2006 1040 tax return, line 63.

I have decided to target 110% of that figure and will adjust Bob's final paycheck from the Corp. to cover the difference. We may owe in April but we won't owe penalties as well.

'til later