Jeff's Tax Liability for Last Year Was $30,000

question 96

Essay

Jeff's tax liability for last year was $30,000. Jeff projects that his tax for this year will be only $25,000. Jeff is self-employed and, thus, will have no withholding. His AGI for last year did not exceed $150,000. How much estimated tax, at a minimum, should Jeff pay for this year to avoid the penalty for underpayment of estimated taxes? How would your answer change if his income exceeded last year's due to a large capital gain at the end of the year?

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Definitions:

Incremental Borrowing Rate

The interest rate a company would have to pay if it borrows funds, used as a benchmark in lease accounting to determine the present value of lease payments.

Net Income

The total earnings or profit of a company after all expenses and taxes have been deducted from revenue.

GAAP

Generally Accepted Accounting Principles, the standard framework of guidelines for financial accounting used in any given jurisdiction, primarily in the United States.

Expense Recognition

The accounting principle that dictates the timing of reporting an expense in the financial statements, ensuring expenses are recorded when incurred.