Special Small Business Estimated Tax Safe Harbor

If you are uncertain about how well your business will fare this year and don’t want to overpay your estimated taxes because you need the cash, there is a special break this year for small business owners that provides a “safe-harbor” estimate amount that will provide protection from federal under-estimated tax penalties. 

To qualify, 50% of your gross income should come from a business with no more than 500 employees and your 2008 AGI should be less than $500,000 ($250,000 if filing married separate).  If you qualify, your required annual payment for 2009 is the smaller of 90% of the tax shown on your 2008 tax return or 90% of the tax shown on your 2009 tax return. 

If you don’t qualify for this special break, the annual safe-harbor payment is the smaller of 90% of the tax shown on your 2009 tax return or 100% of the tax shown on your 2008 return.  However, if your 2008 AGI was over $150,000 ($75,000 if filing married separate), the 2008 safe-harbor figure is increased to 110%.

Under any of the safe-harbor provisions, if you fail to make the required installment amount timely or pay less than the required amount for any of the “quarters,” you may still be subject to penalty for the period that the payment was late or underpaid.

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