Final answer:
To handle a taxpayer's balance due, a tax preparer calculates the taxpayer's estimated tax liability for the upcoming year and divides it into quarterly estimated tax payments using federal Form 1040-ES and the state equivalent. This process helps avoid underpayment penalties.
Step-by-step explanation:
If a taxpayer has a balance due, the tax preparer may need to determine if estimated payments will be necessary for the next year. The steps a tax preparer should take include calculating the taxpayer's expected adjusted gross income, taxable income, deductions, and credits for the upcoming year. Based on these calculations, the preparer would determine the amount of the taxpayer's estimated tax liability for the year.
The tax preparer should then divide the total estimated tax liability by four to find out the amount of each quarterly estimated tax payment. They will provide the taxpayer with federal Form 1040-ES, Estimated Tax for Individuals, for making these payments. For state taxes, the preparer should provide the equivalent state form.
It's important to note that making estimated payments can prevent the taxpayer from facing underpayment penalties at the end of the tax year. These payments are especially important for self-employed individuals, investors, and others who do not have taxes withheld from their income.