If you pulled in more money than you’re used to making — especially if it came from untaxed work — you could be facing a higher-than-expected tax bill that will grow even higher due to a prepayment penalty of 3 or 4 percent if you owe more than $1,000. There’s not much you can do to avoid the penalty for your 2011 taxes, but you can take steps to avoid it next time.
Thousandaire tells you what to do:
* Pay quarterly taxes. If you owed a lot of money last year and expect to rake in the same amount this year, divide your tax bill by four and send regular payments to the IRS.
* Increase your tax withholdings. If you’ve gotten a colossal raise or bonus, your old withholding amount may no longer cut it. Check with your human resources department to up the amount that’s withheld from your paycheck. Also consider upping your retirement contributions.
How to Avoid The Underpayment Penalty [Thousandaire]