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3 April, 20:22

Chris Baker's adjusted gross income on her 2017 tax return was $160,000, which covered a 12-month period. For the 2018 tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of

I. 90% of the tax on the return for the current year, paid in four equal installments

II. 110% of prior year's tax liability, paid in four equal installments

Either I or II

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  1. 3 April, 20:35
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    The correct option is II.

    Explanation:

    Both of the options can be paid but generally, payment of 110% of the prior year's tax liability avoids the penalty for underpayment of estimated tax when the taxpayer's Annual Gross Income from the prior year exceeds $150,000. As the Annual Gross Income of Baker is $160,000 which is more than $150,000, thus the option II is the correct option.
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