Napier & Company, LCC

Protect Yourself from Penalties & Interest

Relating to the Underpayment of Taxes

We are getting close to the end of the year. For us bean counters, this means “tax planning” season. In addition to reviewing tax planning ideas for our clients, we also review that they are protected from being charged interest and penalties relating to the underpayment of taxes for the year. Both the IRS and Oregon have the right to charge you interest and penalties if you do not pay in enough taxes through either withholding or estimated tax payments. In addition, it is not enough to pay in these taxes by the end of the year you have to have had them paid in by the due date of each payment period.

How to be protected:

1. You owe no more than $1,000 in tax for 2009 on your return ($500 for Oregon).

2. Your withholding and estimates cover:

• 90% of the tax to be shown on your 2009 tax return, or
• 100% of the tax shown on your 2008 tax returns (110% for high income folks).

If you do not meet the above, then you are not protected from underpayment penalties and interest.

For our clients that have businesses and take a paycheck, we often protect them by drafting up their 2009 return and making sure that they have enough payroll taxes paid in by the end of the year to protect them.

It is important to know that protection from underpayment penalties and interest does not protect you from late payment interest and penalties. Yes folks, it is true that the taxing authorities have multiple ways to get money from you. In order to be protected from these, you have to have 100% of your taxes paid in with the filing of your extensions if you do not have your return completed by April 15th.

If you have any concerns regarding these rules, please do not hesitate to contact us.