Chris, a single taxpayer, has investment income in addition to his salary.Use the information below to answer the following question concerning Chris' estimated tax payments during 20X1.Assume that all forms of income, withholding, and deductions occur at a constant rate throughout the year. Salary $\quad$$\quad \$ 39,000$
Federal income tax withheld$\quad$ $\$ 3,200$
Interest income$\quad$$\quad$14,150 If Chris pays quarterly installments of $300 on or before the due dates (his 20X0 tax liability was $7,200), and he pays the remaining tax liability on April 15, 20X2, calculate the penalty for underestimation of tax that Chris will owe to the nearest dollar.Assume a penalty interest rate of 10 percent, and installment due dates 365, 304,212, and 90 days prior to April 15.
A)$70
B)$175
C)$186
D)$280

Question

Quizplus · Accepted Answer

The penalty for underestimation of tax is calculated as follows:Penalty = (Tax liability - Withholding - Estimated tax payments) x Penalty interest rate x Number of days late / 365Tax liability = $7,200 + (14,150 x 0.15) = $9,922.50Withholding = $3,200Estimated tax payments = $300 x 4 = $1,200Number of days late = 90Penalty = ($9,922.50 - $3,200 - $1,200) x 0.10 x 90 / 365 = $186.03

Chris, a Single Taxpayer, Has Investment Income in Addition to His