To avoid penalties for underpayment of taxes, it is important to timely pay the full amount of taxes due to the relevant tax authorities.
To accomplish this, taxpayers should regularly estimate their tax liabilities and make quarterly estimated tax payments to the IRS or applicable state tax agency.
If the taxpayer underpays taxes, they may be subject to penalties and interest. However, there are certain exceptions and limitations to these penalties.
For example, taxpayers who paid at least 90% of their total tax liability in the current year or 100% of the prior year's tax liability through withholding or estimated tax payments are generally not subject to underpayment penalties.
Additionally, taxpayers who owe less than $1,000 in total tax liability after subtracting their withholding and estimated tax payments are also exempt from underpayment penalties.
If a taxpayer has failed to meet the requirements for avoiding underpayment penalties, they may be able to request a waiver of penalties by demonstrating that the underpayment was due to reasonable cause and not willful neglect.
It is important to note that tax laws and regulations are subject to change, and taxpayers should consult with a licensed tax professional or attorney to ensure compliance with current legal requirements.
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