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Safe Harbor Estimated Taxes

TL;DR

Safe harbor is the IRS rule that shuts off the underpayment penalty once you've prepaid enough during the year, even if there's still a balance due come filing time.
There are two ways in: cover 90 percent of this year's tax, or 100 percent of last year's, whichever comes out smaller. That prior-year number climbs to 110 percent once your prior-year AGI tops $150,000.
The prior-year method is the dependable one. Its target is a known number already printed on last year’s return, not a forecast of income you have not earned yet.

Safe harbor is the rule that switches off the IRS underpayment penalty once you have prepaid enough during the year, even when a large balance is still due in April. Pay 100 percent of last year's tax, or 110 percent if your prior-year AGI topped $150,000, and the penalty cannot apply, no matter how big this year's number turns out. For most filers the prior-year figure is the one to chase, because it is locked in and easy to hit.

Safe harbor stops the penalty, not the bill

You can finish the year with a large balance due and still owe zero penalty, as long as your payments cleared the harbor along the way. Safe harbor caps the penalty. It does not size your final bill, and it does not mean you prepaid the exact amount.

Anytime you have a major change in your situation, whether it’s your family situation, whether it’s your work, whether it’s income or source of income, you want to speak with the tax adviser and make sure that everything that you’re doing now continues to make sense in the future.

George Dimov, CPA

The two routes, and why one is steadier

90 percent of this year’s tax

Useful when your income is flat or falling, but it leans on a forecast of a number you do not yet know.

100 percent of last year’s tax

The target is already on last year’s return at Form 1040, line 24, so you divide it by four and pay without guessing.

Most taxpayers avoid the penalty by clearing the smaller of those two amounts. When income is rising, the prior-year route wins, because it locks onto a year that is already closed.

The 110 percent rule for AGI over $150,000

Higher earners pay more to qualify. If your prior-year AGI cleared $150,000, or $75,000 filing separately, the prior-year bar moves to 110 percent rather than 100. This trips people up. Pay exactly 100 percent when you actually owed 110, assume you're safe, and the IRS still hits you with a penalty on the gap. This is the single most common way the safe harbor is missed by accident.

How we calculate your safe harbor estimated taxes

Pull last year’s total tax

We take line 24 from your prior return and apply 100 or 110 percent based on your AGI.

Divide and schedule

We split that target across the four due dates and hand you the amount to send each time.

Switch only if it saves you

If your income is dropping, we test whether the 90 percent current-year route lets you pay less, and move you to it.

Why the cheaper route needs a human eye

A safe-harbor calculator returns one number from the figures you type in. It does not read your actual prior return, and it will not tell you the 90 percent route is cheaper this year. We check both routes against the real numbers and put you on the lower one.

Dimov Tax recommended changes to my tax strategy which had a significant positive impact on my return this year.

Julie N., Google review.

Pricing

Price tracks what your year involves: a one-time safe-harbor calculation at one end, quarterly support across the year at the other, with the number of income sources and whether last year's return needs a review sitting in between. Send your prior 1040 and we will quote the exact figure.