Question

Trudy's AGI last year was $262,000. Her Federal income tax came to $78,600, paid through both withholding and estimated payments. This year, her AGI will be $393,000, with a projected tax liability of $58,950, all to be paid through estimates. Trudy wants to pay the least amount of tax that does not incur a penalty. Assume instead that Trudy's AGI last year was $88,000 and resulted in a Federal income tax of $17,600. Determine her total estimated tax payments for this year.

Answer 1

Trudy can avoid a penalty by paying 100% of the previous year's tax liability, which would make her estimated tax payments for this year $17,600.

Step-by-step explanation:

The question revolves around determining Trudy's total estimated federal tax payments for this year, given that there was a change in her adjusted gross income (AGI) from the previous year. According to federal income tax law, if a taxpayer's current year tax liability is less than the previous year, they can avoid penalties by paying 100% of the previous year's tax liability. Knowing that Trudy's AGI last year was $88,000 and her Federal income tax was $17,600, Trudy can make her total estimated tax payments for this current year equal to the previous year's liability of $17,600 to avoid underpayment penalties.