The Safe Harbor Approach to Estimating Your Taxes

Use the safe harbor approach to avoid a penalty.

If you're not sure what approach to take to figure out your estimated taxes and you just want to be safe, do the following:

  • If your prior year adjusted gross income was $150,000 or less ($75,000 or less if married filing separately) make sure...
    • your total withholdings (if any) plus
    • your quarterly tax installments equal 100% of your prior year tax liability.
  • If your prior year adjusted gross income was more than $150,000 (or over $75,000 if married filing separately) then make sure...
    • your estimated tax installments for the current year equal at least 110% of your prior year tax liability.

Note: Your prior year tax return must have covered a full 12 months.

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Have an accounting or bookkeeping question? Email it to me.