Anyone who makes quarterly estimated tax (QET) payments, take note: Congress decided to raise funds for new jobless benefits by accelerating estimated-tax-payment requirements. Plus, it's upped the fines for failure to comply with QET guidelines.
Anyone with more than $500 worth of tax liability who isn't covered through salary withholdings must make four tax payments to the IRS each year. In the past some degree of flexibility was offered to people who could not, with complete accuracy, predict their annual earnings and business expenses. You could avoid tax penalties if your QET payments amounted to either 100% of last year's tax liability or 90% of the current year's liability.
But as of December 31, 1991, the IRS no longer settles for 100% of last year's bill in cases in which taxpayers earn adjusted gross incomes of at least $75,000, paid quarterly estimated taxes during any of the three previous years, and earn $40,000 more than they did last year. If you fall into that category, you will have to show that your QETs covered 90% of your current year's taxes, or you'll be penalized by daily interest fees currently pegged at a 10% annualized rate.
Who's at risk? Anyone in a fast-growing-business situation -- whether it's a business partnership or sole proprietorship -- could easily experience the kind of income boost that would trigger a tax penalty. To minimize potential problems: (1) keep accurate, timely records of all income and business expenditures; (2) transmit that information to your accountant on a quarterly, not annual, basis; and (3) plan for heavy cash-flow demands when it comes time to make your final, January 15 QET payment. That way you'll be sure to pay at least 90% of your actual tax liability. -- Jill Andresky Fraser* * *