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How to avoid underpayment penalties - a DIY guide for eliminating federal penalties - YouTube
Channel: Alison M. Eddings
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did you get a notice from the irs or your聽
state taxing agency saying that you had聽聽
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tax penalties for 2020 what was that聽
about let's find out in this video聽聽
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hello friends i am alison eddings i'm a cpa in聽
private tax practice welcome to my channel so聽聽
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this is really exciting i am so loving getting聽
these videos out to you guys it is i feel like聽聽
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it's empowering for you and that's really聽
you know i i started my practice in 2004聽聽
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um and that's kind of what you know that that's聽
what really pushed me is to empower particularly聽聽
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small business owners because i was working for a聽
firm that um considered small business owners to聽聽
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be you know 5 million and above and i was turning聽
away people that were smaller than that but these聽聽
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are the people that needed me and so my practice聽
that i opened in 2004 was really to help small聽聽
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business owners and you know the little guy that聽
needed help you know but there's only one me and聽聽
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and i have definitely found during pandemic it's聽
hard to find help people just you know i don't聽聽
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know i don't know what the deal is but so there's聽
less of me but there's more of you guys who need聽聽
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this so this youtube channel has been great and聽
i am just so enjoying sharing with you how to um聽聽
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how to just take control how to take just i聽
mean not ownership because it's already yours聽聽
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how to take back ownership of some things that are聽
yours i don't even know how to say it but i'm just聽聽
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so tickled to be able to share with you today聽
how to make sure you don't have an underpayment聽聽
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penalty for 2021. so oh and it's super exciting聽
too because i'm learning how to make these videos聽聽
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better and so like i have in my mind that i'm聽
gonna put this this this and that there but聽聽
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hopefully i will have figured out how聽
to show you like with a screen grab聽聽
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how to pay your estimated taxes on the irs website聽
so let's see let's see if i can get that done聽聽
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so did you know your taxes are due december聽
31st of the tax year so this is 2021
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by 12 31 2021 irs expects聽
you to have your taxes paid聽聽
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so what's this april 15th thing about oh that's聽
just to file the forms to reconcile it make sure聽聽
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you got the number right wait what so you mean if聽
you didn't pay enough in by the end of the year聽聽
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you can get a penalty even if you paid by april聽
15th yeah federal and state um now during covent聽聽
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times irs made some temporary changes to that聽
and said okay well if you paid it by i think聽聽
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for 2019 it was if you paid it by july 15th but聽
then like some of the states didn't follow suit聽聽
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it's just it's so messy because people are just聽
throwing stuff in the wall and seeing if it sticks聽聽
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and that's brick nothing's going to stick so but聽
typically in most years and a really great way聽聽
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to make sure you are covered is to meet one of聽
these two criterion either you can estimate 98聽聽
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of your current year tax liability and have聽
that paid by december 31st now yeah yeah yeah聽聽
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i know the estimated tax for the you know last聽
quarter is january 15th we're not going to even聽聽
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go there i'm not even going to go there because聽
i'm trying to make it simple and two weeks聽聽
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really shouldn't break you not for penalties if聽
you if it really is going to break you take the聽聽
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penalty but we're just going to say end of the聽
year because you know what the the quarterly聽聽
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estimated tax payment schedule it's not it doesn't聽
make logical sense go figure irs um but they are聽聽
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working to try and get that fixed where it's like聽
15 days after the end of the quarter which is what聽聽
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january 15th is um but you can have 98 of your聽
current your tax liability well what's that man聽聽
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well for a w-2 employee that that's all they've聽
got you know let's say you're single and you've聽聽
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just got that one job and you've had it all year聽
long it's pretty easy to hit that target but you聽聽
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add in okay well i'm married and there's聽
a big difference between husband and wife聽聽
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salary you might miss the target okay well we聽
both make about the same amount so we should聽聽
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be withheld pretty well but we have two kids in聽
daycare okay you're not gonna hit that target聽聽
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um you're not gonna be able to estimate really聽
easily like you would if it was just 1 w2 and what聽聽
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about if you're self-employed what okay i'm not聽
even sure most of my self-employed clients right聽聽
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now have a real tight set of books so if i were to聽
go to them and say what's our projection through聽聽
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the end of december they'd go maybe 20 more than聽
last year that's kind of the answers i get and so聽聽
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if you're myself completely for yourself and聽
point client of mine i expect that sometimes聽聽
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you guys freak out and you go huh i don't have聽
an exact number i get that a lot so like you're聽聽
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not alone it's hard it's hard to estimate that so聽
for those of us who have a hard time estimating聽聽
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and i'll even say that includes me right now i'm聽
not really sure what my 2021 is going to look聽聽
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like because there's some decisions i have to make聽
i'm going to be doing tax planning for my clients聽聽
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over the next three months and that includes聽
my my tax minimization strategy as well so i聽聽
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don't even know because i haven't implemented my聽
strategies yet i got to decide so don't even know聽聽
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but for those of us who aren't quite sure we聽
can make sure to avoid penalties by having 100聽聽
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of the previous year's tax liability on deposit聽
what is the previous year's tax liability聽聽
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well for 2021 we go back and we look at the 2020聽
tax return and it doesn't mean the balance do i聽聽
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covered that a little bit in the last video um聽
assuming that there's gonna i might change the聽聽
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order they go out in but i'm assuming i did聽
do a little bit about that in the one about聽聽
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definitions matter if you want to see more about聽
that but the balance due and the total tax often聽聽
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are two different numbers the total tax number聽
for 2020 on that 1040 es which does not mean聽聽
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the 1040 sr which does not mean you know there's聽
but for the most part you guys are on the 1040e聽聽
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i said 1040 es that's the form that you聽
use to pay the estimated taxes on the 1040.聽聽
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i just saw a scary thing flutter back聽
there better not be a lizard or spider聽聽
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but the total tax is on line what is it 24 of the聽
10 40. now if you want to look at the sr i didn't聽聽
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double check that one before i started shooting聽
this video but if you want to look at the 1040聽聽
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sr just look for the line that says total tax聽
you want to make sure you have that on deposit聽聽
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but you get credit for everything on your w-2聽
everything withheld from your social security or聽聽
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if you have retirement distributions all of that聽
so let's say the line 24 of your 1040 says 5 000聽聽
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but you look at your year-to-date pay stub and it聽
says you've got 3 500 withheld it usually says fit聽聽
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or federal or fed so that means that's what you've聽
got to get between now and the end of the year聽聽
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so i'm going to cover that in another video how to聽
project out and how to take your your pay stub for聽聽
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the year uh your most recent pay stub and project聽
out through the rest of the year and make sure聽聽
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you're on target but for right now i just want聽
you to understand that to avoid underpayment聽聽
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penalties you have to pay 98 of the current聽
year liability or 100 of the previous year聽聽
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now the reason why there's that or is that this聽
might have been a bad year you might not have been聽聽
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working you might have been on maternity leave you聽
might have you know i like to use benign things聽聽
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like that you know appendicitis not like you聽
know there's a lot of reasons to be out right now聽聽
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and not all of them are benign reasons聽
but we'll keep it light-hearted聽聽
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your income is lower that's where we use the聽
98 percent and maybe you need to forecast out聽聽
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a little bit tighter or just let it ride and go聽
okay there might be penalties but i'm going to ask聽聽
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for a first-time penalty abatement when i get that聽
penalty because i was out of work for six months
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but if you know things are pretty consistently聽
from year to year okay and you have cash flow聽聽
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wise you can make sure that you have 100聽
of the prior year number use that number so聽聽
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hopefully this was informative聽
helpful encouraging maybe聽聽
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i would really appreciate it if you would聽
subscribe to my channel if so because the聽聽
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more subscribers i have the more youtube pushes聽
this content out to other people and the more聽聽
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people know i mean it can only be good it can only聽
be good to be empowered right so i would love to聽聽
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do that for even more so share subscribe聽
like i appreciate it have a great day bye
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you
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