As Tax D-Day Approaches, You Can Retreat--At a Cost
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You will avoid a penalty if withholding trails your liability by less than $1,000, or if you underpay by 10 percent or less. One way to narrow a gap is to file a new W-4 at work to boost withholding late in the year, which can make up for under withholding earlier. When withholding won't do the job, you must begin estimated payments, which are figured on Form 1040-ES. A tactic to avoid a penalty for 2001, no matter how much you owe, is to be sure that the sum of withholding and estimated taxes paid for this year equals at least 100 percent of your 2000 tax--or 110 percent if your 2000 adjusted gross income topped $150,000.
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But making a large estimated payment late in the year may not forestall a penalty for failing to have made payments earlier. A worksheet in the 1040-ES helps you craft the sums you must pay to avoid a penalty--even if, as in Torres's case, you still owe plenty when you file.
Where to Learn More
Forms and instructions: Download at www.irs.gov or get them by fax by calling (703) 368-9694 from a fax machine.
Tax guides: J.K. Lasser's Your Income Tax ($16) digs into even complex issues. The Ernst & Young Tax Guide ($17) reprints and clarifies IRS guidance.
Software: TurboTax and TaxCut ($10 to $30) can lead you through a return; though leave time to get used to the program. Online preparation at www.turbo tax.com and www.taxcut.com.
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