How can a Taxpayer avoid the underpayment penalty?
Taxpayers who faced the underpayment penalty in 2007, should take the time do some year end tax planning with their CPA's in late November or December to avoid these punitive penalties.
The strategy is really straightforward in that taxpayers should generally increase their federal and state withholding from their regular paycheck for the remaining 2 months of 2008.
To avoid this penalty, taxpayers should do one of the following;
1. pay at least 90% of this years tax liability,that is for the tax year 2008!
2. pay 100% of prior years (tax year 2007) tax liability, but if the taxpayers AGI is in excess of $150,000 they would need to pay at least 110% of 2007's tax liability.