Business Decision: The 90% Rule, Happy New Year! 29. Patrick Von Radesky, an engineer with Century Power and Light, earns a gross income of $6,000 per month. Patrick is single and uses the standard deduction. Throughout last year, his company withheld $600 each month from his paycheck for federal income tax. Dollars and Sense If the April 15 clock runs out, you can get an automatic six-month extension to file until October 15 by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. However, this extension of time to file does not give you more time to pay any taxes due. If you have not paid at least 90% of the total tax due by the April deadline, you may be subject to an estimated tax penalty. There are three ways to request an automatic extension of time to file a U.S. individual income tax return: Use Form 4868 electronically by accessing IRS e-file using a computer or by using a tax professional who uses e-file. File a paper Form 4868. Use Free File at www.freefile.irs.gov. Today is January 4. As Patrick's accountant, you just informed him that although his tax return is due at the IRS by April 15, 90% of the income tax due for last year must be paid by January 15; otherwise, a penalty will be imposed. a. Calculate the amount of tax Patrick owes for the year. b. Did his company withhold enough from each paycheck to cover the 90% requirement? c. How much should Patrick send the IRS by January 15 so that he will not be penalized? d. If Patrick waits until April 15 to send the balance of his taxes to the IRS, how much will he be penalized if the penalty is 18% per year, or 1.5% per month, on the shortfall up to 90%? (Hint: Use the simple formula I= PRT with exact interest.) e. If Patrick gets a 10% raise, all other factors being the same, how much should he tell his payroll department to withhold from each month's paycheck so that 90% of the tax due will be deducted?
Business Decision: The 90% Rule, Happy New Year! 29. Patrick Von Radesky, an engineer with Century Power and Light, earns a gross income of $6,000 per month. Patrick is single and uses the standard deduction. Throughout last year, his company withheld $600 each month from his paycheck for federal income tax. Dollars and Sense If the April 15 clock runs out, you can get an automatic six-month extension to file until October 15 by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. However, this extension of time to file does not give you more time to pay any taxes due. If you have not paid at least 90% of the total tax due by the April deadline, you may be subject to an estimated tax penalty. There are three ways to request an automatic extension of time to file a U.S. individual income tax return: Use Form 4868 electronically by accessing IRS e-file using a computer or by using a tax professional who uses e-file. File a paper Form 4868. Use Free File at www.freefile.irs.gov. Today is January 4. As Patrick's accountant, you just informed him that although his tax return is due at the IRS by April 15, 90% of the income tax due for last year must be paid by January 15; otherwise, a penalty will be imposed. a. Calculate the amount of tax Patrick owes for the year. b. Did his company withhold enough from each paycheck to cover the 90% requirement? c. How much should Patrick send the IRS by January 15 so that he will not be penalized? d. If Patrick waits until April 15 to send the balance of his taxes to the IRS, how much will he be penalized if the penalty is 18% per year, or 1.5% per month, on the shortfall up to 90%? (Hint: Use the simple formula I= PRT with exact interest.) e. If Patrick gets a 10% raise, all other factors being the same, how much should he tell his payroll department to withhold from each month's paycheck so that 90% of the tax due will be deducted?
Chapter1: Federal Income Taxation—an Overview
Section: Chapter Questions
Problem 73TA
Related questions
Question
Patrick Von Radesky, an engineer with Century Power and Light, earns a gross income of $6,000 per month. Patrick is single and uses the standard deduction. Throughout last year, his company withheld $600 each month from his paycheck for federal income tax.
Today is January 4. As Patrick’s accountant, you just informed him that although his tax return is due at the IRS by April 15, 90% of the income tax due for last year must be paid by January 15; otherwise, a penalty will be imposed.
Calculate the amount of tax Patrick owes for the year.
Did his company withhold enough from each paycheck to cover the 90% requirement?
How much should Patrick send the IRS by January 15 so that he will not be penalized?
If Patrick waits until April 15 to send the balance of his taxes to the IRS, how much will he be penalized if the penalty is 18% per year, or 1.5% per month, on the shortfall up to 90%? (Hint: Use the simple formula
with exact interest.)
If Patrick gets a 10% raise, all other factors being the same, how much should he tell his payroll department to withhold from each month’s paycheck so that 90% of the tax due will be deducted?
Transcribed Image Text:Business Decision: The 90% Rule, Happy New Year!
29. Patrick Von Radesky, an engineer with Century Power and Light, earns a gross income
of $6,000 per month. Patrick is single and uses the standard deduction. Throughout
last year, his company withheld $600 each month from his paycheck for federal
income tax.
Dollars and Sense
If the April 15 clock runs out, you can get an automatic six-month extension to
file until October 15 by filing Form 4868, Application for Automatic Extension of
Time to File U.S. Individual Income Tax Return. However, this extension of time
to file does not give you more time to pay any taxes due. If you have not paid at
least 90% of the total tax due by the April deadline, you may be subject to an
estimated tax penalty.
There are three ways to request an automatic extension of time to file a U.S.
individual income tax return:
Use Form 4868 electronically by accessing IRS e-file using a computer or by
using a tax professional who uses e-file.
File a paper Form 4868.
Use Free File at www.freefile.irs.gov.
Today is January 4. As Patrick's accountant, you just informed him that although his
tax return is due at the IRS by April 15, 90% of the income tax due for last year must
be paid by January 15; otherwise, a penalty will be imposed.
a. Calculate the amount of tax Patrick owes for the year.
b. Did his company withhold enough from each paycheck to cover the 90%
requirement?
c. How much should Patrick send the IRS by January 15 so that he will not be
penalized?
d. If Patrick waits until April 15 to send the balance of his taxes to the IRS, how
much will he be penalized if the penalty is 18% per year, or 1.5% per month, on
the shortfall up to 90%? (Hint: Use the simple formula I= PRT with exact
interest.)
e. If Patrick gets a 10% raise, all other factors being the same, how much should he
tell his payroll department to withhold from each month's paycheck so that 90%
of the tax due will be deducted?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you