How can I reduce the underpayment penalty in 2008?
Well, the if you are being confronted with a potential underpayment penalty, tax experts suggest that you increase your withholding in the month of December 2008!
By taking more out of your paycheck would be the most efficient method to avoid a penalty. As such, a taxpayer need not have to pay the entire tax they expect to owe by the end of the tax year. The minimum amount that is required to be prepaid is 90% of the tax year 2008 year’s tax liability, and by doing so, the taxpayer would incur no underpayment penalty.
Alternatively, the taxpayer would not incur any underpayment penalty by prepaying 100% of his 2007 tax liability (110% if your AGI for 2007 topped $150,000)!