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Sidestep an ‘estimated tax’ trap

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in Small Business Tax

Q.  My accountant says that I may owe an under payment tax penalty this year. But I’m expecting to receive a refund. Is that possible? A.P., La Crosse, Wis.

A.  Yes. The “estimated tax” rules require payments throughout the year. For instance, the first quarterly installment is due on April 15. If you miss this deadline, you can’t make it up with larger payments on the next three due dates (June 15, Sept. 15 and Jan. 15). So you could owe a penalty for failing to make the April 15 payment even if you are entitled to a refund for the entire year.

Tip: If you’re working and receive wages, you may avoid an estimated tax penalty by increasing your income tax withholding at the end of the year.

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