Intuit Academy Tax Practice Exam

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Enhance your tax preparation skills with the Intuit Academy Tax Exam. Study with comprehensive quizzes and detailed explanations. Prepare for success today!

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What is the impact of not making estimated tax payments for Alexa?

Maximum of 10% penalty
She will not face any penalties
She could incur underpayment penalties
She will automatically be granted an extension

The correct answer is: She could incur underpayment penalties

If an individual, such as Alexa, does not make estimated tax payments, they could incur underpayment penalties. Estimated tax payments are required for individuals who expect to owe tax of a certain amount on their income that is not subject to withholding. If these payments are not made sufficiently throughout the year, the IRS may impose penalties due to the underpayment. The penalties for underpayment are calculated based on the difference between the amount of tax owed and the amount that was actually paid throughout the year. The IRS requires taxpayers to pay a certain percentage of their expected tax liability either through withholding or estimated tax payments by specified deadlines. Failing to meet these requirements can lead to penalties, designed to encourage timely payment of taxes. In this context, the answer emphasizes the importance of making estimated tax payments to avoid additional costs. Taxpayers should assess their financial situation and tax liability accurately to ensure compliance and avoid penalties for underpayment.