How can you avoid tax penalties on income tax liabilities?

How can you avoid tax penalties on income tax liabilities?

The United States (IRS) and Puerto Rico (Hacienda) tax regimes are pay-as-you-go systems. This means that taxes must be paid (deposited) to the relevant tax authority as income is earned or received throughout the year. The most important aspect of the pay-as-you-go system is that the taxpayer is required to pay (deposit) your tax, although tax returns are filed during the following fiscal year.

How do you pay your estimated tax payments? This is done either through retention (withholding) your customers make on the payments made to you, or by you directly depositing estimated tax payments. This is now usually performed through e-portals provided by the taxing authorities. For the IRS the system would be EFTPS. For Hacienda it would be Colecturía Virtual (literal translation: Virtual Collectorship).

If the taxpayer did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, the taxpayer may have to pay a penalty for underpayment of estimated tax.

Generally, most taxpayers will avoid this penalty if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. You would still need to ask your CPA or business advisor to make sure that you are fully compliant with the state and federal regulations where you do business, as circumstances vary by jurisdiction.

Make sure you have everything ready for your tax filing due dates. If you have a question or comment, feel free to contact me to see how I can help.

 


Miguel Nicolas Moreda, CPA, CIRA

Miguel Nicolas is the founder of Porto Capital. Prior to working as a financial and restructuring advisor for small and medium-sized businesses, he worked at GFR Media Real Estate Division as Finance Manager. Before that, he worked in the Business Advisory Division at Ernst & Young US, LLP in the United States.

He is holds an undergraduate degree in accounting from the University of Puerto Rico. He also possess graduate degrees from the University of Puerto Rico School of Law and IE Business School in Spain. Miguel is a Certified Public Accountant (CPA) and a Certified Insolvency and Restructuring Advisor (CIRA).

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