Estimated Tax Underpayment/Interest Penalty

[doughboy611]

So I understand the underpayment of estimate tax rule. Either 90% of current years tax liability, 100% of prior years liability, whichever is smaller. And if you make over 150,000 its 110% of prior year.

My question is would there still be an interest penalty if you paid the balance with your return for the year?

Example: My tax liability for last year (2013) was 0. This year it will be much higher. Let's say its $7,000 for 2014. I already know theres no underpayment penalty because of the above rule; however, would I have to pay interest on that $7000 even if I pay it in full when I do my 2014 tax return?

Thanks.

 

[kirby]

Depends when you became liable for the $7,000.
If it was due to wages earned over 2013 and your DID NOT have anything withheld then at tax time you paid the $7,000 then yes, you get charged interest cause IRS wants that to be withheld as you go along the year.

So they calculate each quarter
1) what you should have paid and
2) what you did have withheld (or that you sent in as estimated tax)
and if there is an underpayment then there is interest charged on that.
It's more involved than this but that's the basic idea..........

 

[doughboy611]

Depends when you became liable for the $7,000.
If it was due to wages earned over 2013 and your DID NOT have anything withheld then at tax time you paid the $7,000 then yes, you get charged interest cause IRS wants that to be withheld as you go along the year.

So they calculate each quarter
1) what you should have paid and
2) what you did have withheld (or that you sent in as estimated tax)
and if there is an underpayment then there is interest charged on that.
It's more involved than this but that's the basic idea..........

It will be capital gains earned in 2014. My 2013 has already been done and has federal tax of 0. So under the above posts rule, I wouldnt pay any underpayment penalty in 2014s tax return if tax balance is paid in full by April 15, 2015, because 100% of 0 (2013 last year tax liability) is 0. My question is, would there be interest penalty in this specific case?

 

[kirby]

Again - it depends on WHEN the capital gains event happened. If in first qtr 2014 (which it must be based on the info above then you NEED to make an estimated tax payment for the first quarter 2014. OK?