Estimated Tax Penalty (Interest Calculation)

Did you know the Estimated Tax Penalty is actually an interest calculation? You calculate interest from each deposit due date with the net amount due and then you calculate the interest till the tax due date. The IRS uses the Federal interest rates for the calculations but they use a simple interest methodology versus daily compounding of interest.

You can easily due this calculation in TaxInterest. First choose the 2210 (personal) or 2220 (corporate) table. This is the simple interest table. Then put the net amounts that were due on the deposit dates as a tax event, i.e 4/15, 6/15, etc. You should have four tax events with the amounts and then compute to the tax due date. The interest calculation is your Estimated Tax Penalty. Now that was easy.