Services | Tax Planning

Safe harbor

In order to avoid underpayment penalties on your personal tax return (Form 1040), you need to have a minimum amount of taxes paid in to the government in a combination of withholdings and/or quarterly estimates. This “safe harbor” threshold for avoiding underpayment penalties is different for Federal and State returns.

For your Federal tax return, you need to have at least 1) 100% of your prior year’s Federal tax liability (110% if your current year adjusted gross income is > $150,000 and you are not married filing separately), or 2) 90% of your current year’s Federal tax liability paid in via a combination of tax withholdings and/or quarterly estimates. If you don’t achieve either safe harbor, an underpayment penalty may be assessed on your tax return.

Each State’s personal tax return safe harbor level is different. In Massachusetts, for example, you need to have at least 1) 100% of your prior year’s Massachusetts state tax liability, or 2) 80% of your current year’s Massachusetts state tax liability paid in via a combination of tax withholdings and/or quarterly estimates. If you don’t achieve either safe harbor, an underpayment penalty may be assessed on your tax return.

Corporate, partnership, and trust and estate tax returns may have their own safe harbor thresholds as well.

Tax withholdings

If you are an employee receiving a paycheck during the year and a W-2 at the end of the year summarizing your total wages, you likely have taxes being withheld for Federal and/or State taxes. You elect the withholding rate that your employer withholds these taxes at. We help clients manage these withholdings for their cash flow and safe harbor planning needs.

Quarterly tax estimates

You may be self-employed and don’t have taxes withheld from a paycheck. Or your withholdings aren’t sufficient to cover your estimated tax liability because you had taxable income in addition to your wages. We help clients calculate what their quarterly tax estimates should be and we prepare these vouchers for clients. We also send out reminders to clients in advance of the deadline for each quarterly estimate to remind them of these deadlines.

Year-end planning

In many (but not all) tax situations, once December 31st has passed (for calendar year taxpayers), your tax situation for that year is finalized. We work with clients in the latter months of the year to project what their tax situation will look like for that year and to make any changes needed prior to the end of the year.

International tax considerations

If you have signature authority over a foreign bank account that has a balance greater than $10,000 (in US dollars) at any time during the calendar year, there is a tax return filing requirement.
If you physically work outside the United States for more than a certain number of days, you may not have to pay tax on your foreign earned income.
If you work in a foreign country, your income may be taxed by that country that the United States may have a tax treaty with.
If you own mutual funds that invest in foreign securities, those mutual funds may pay taxes in that foreign country and pass along a foreign tax credit to you.
There are various international tax considerations you may need to consider in your tax situation, and we work with international tax experts to make sure these considerations are accounted for properly for you.

Home About Services Resources Contact
		Services \| Tax Planning
Overview Tax Return Preparation Tax Planning Bookkeeping Accounting Information Systems Design & Planning Secure, On-line Client Portal Payroll Planning Business Planning Cash Flow and Budgeting Professional Designations, Connections, and Memberships Sechrest Financial Services, LLC		Safe harbor In order to avoid underpayment penalties on your personal tax return (Form 1040), you need to have a minimum amount of taxes paid in to the government in a combination of withholdings and/or quarterly estimates. This “safe harbor” threshold for avoiding underpayment penalties is different for Federal and State returns. For your Federal tax return, you need to have at least 1) 100% of your prior year’s Federal tax liability (110% if your current year adjusted gross income is > $150,000 and you are not married filing separately), or 2) 90% of your current year’s Federal tax liability paid in via a combination of tax withholdings and/or quarterly estimates. If you don’t achieve either safe harbor, an underpayment penalty may be assessed on your tax return. Each State’s personal tax return safe harbor level is different. In Massachusetts, for example, you need to have at least 1) 100% of your prior year’s Massachusetts state tax liability, or 2) 80% of your current year’s Massachusetts state tax liability paid in via a combination of tax withholdings and/or quarterly estimates. If you don’t achieve either safe harbor, an underpayment penalty may be assessed on your tax return. Corporate, partnership, and trust and estate tax returns may have their own safe harbor thresholds as well. Tax withholdings If you are an employee receiving a paycheck during the year and a W-2 at the end of the year summarizing your total wages, you likely have taxes being withheld for Federal and/or State taxes. You elect the withholding rate that your employer withholds these taxes at. We help clients manage these withholdings for their cash flow and safe harbor planning needs. Quarterly tax estimates You may be self-employed and don’t have taxes withheld from a paycheck. Or your withholdings aren’t sufficient to cover your estimated tax liability because you had taxable income in addition to your wages. We help clients calculate what their quarterly tax estimates should be and we prepare these vouchers for clients. We also send out reminders to clients in advance of the deadline for each quarterly estimate to remind them of these deadlines. Year-end planning In many (but not all) tax situations, once December 31st has passed (for calendar year taxpayers), your tax situation for that year is finalized. We work with clients in the latter months of the year to project what their tax situation will look like for that year and to make any changes needed prior to the end of the year. International tax considerations If you have signature authority over a foreign bank account that has a balance greater than $10,000 (in US dollars) at any time during the calendar year, there is a tax return filing requirement. If you physically work outside the United States for more than a certain number of days, you may not have to pay tax on your foreign earned income. If you work in a foreign country, your income may be taxed by that country that the United States may have a tax treaty with. If you own mutual funds that invest in foreign securities, those mutual funds may pay taxes in that foreign country and pass along a foreign tax credit to you. There are various international tax considerations you may need to consider in your tax situation, and we work with international tax experts to make sure these considerations are accounted for properly for you.