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Thank you , lorenzo2, you got it pretty well except for one step.
He said:
"I do not understand why the four quarterly advance payments are not to be included on this line.
Because Part II covers the 3 safe harbors (within $1,000, or 90% of this year's tax, or = to last years tax [or 112%]) when using withholding only (the $1,000 doesn't apply when you pay estimates).

Part III, Short Method then figures your other 2 safe harbors when paying *4 equal and on time* installments, with or without withholding. This option allows underpayment and has a quick way to figure the penalty.

If you can't meet Part III (because of unequal or late installments ), you go to part IV which averages your income over the 4 quarters and applies installments as paid and withholding either averaged over the 4 quarters or applied in the quarters it was withheld.

If you still have a penalty, you can go to the Schedule AI and distribute your net income (and hence taxes) as it was earned in the 4 quarters. This will help you reduce the penlty if your income was higher in later quarters.

Yes, the best thing is to set your withholding just above last year's tax. Next best, pay 4 equal and on time installments to do that. Look into other methods if your taxes will be lower than last year. ed
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