Cindy's current year adjusted gross income (AGI) is $300,000 and her current year total tax liability is $60,000. Her immediate prior year AGI is $200,000 with a total tax liability of $40,000. To avoid an underpayment interest penalty, what is Cindy's minimum required total tax payment amount for the current year

The answer is $44,000

Explanation:

Solution

Given that

Now

Present/current year AGI = $300000

Present / current year tax liability = $60000

Prior year AGI = $200000

Prior year tax liability = $40000

Thus

As per Tax rule or applying the Tax rule

If Adjusted gross income (AGI) of prior year is below $250000 then the minimum required tax payment in the current year in order to avoid interest penalty is lower of

(1) 90% of present / current year tax (liability) or

(2) 110% of prior year tax liability

So

Because the prior year AGI is $200000 which is lower than $250000, in order to avoid interest penalty, the minimum required payment amount of tax liability in current/present year is lower of

(1) 90% of current year tax liability of $60000

Then

$60000 * 90% = $54000

Or

(2) 110% of prior year tax liability of $40000

$40000 * 110% = $44000

Hence, minimum required total tax payment amount for the current year is $44,000