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Tax Prep — Estimated-Tax Safe-Harbor Buffer
The parent margin-of-safety sizes a buffer against estimation error. Estimated taxes are exactly that: pay enough to clear a safe harbor so a bad income estimate never triggers an underpayment penalty. The safe harbor is the margin of safety.
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How it works
- Floor = safe harbor: generally 90% of current-year tax or 100% of prior-year (110% if prior AGI > $150k). - Buffer sizing: pay to the higher-certainty harbor (prior-year is known; current-year is a guess). - Volatility: for lumpy income, use annualized-income installment method rather than flat quarters.
When to use it
- self-employed / K-1 / variable-income client planning quarterly 1040-ES
- 'how much should I set aside?', 'will I owe a penalty?', volatile income year
When not to use it
W-2 withholding fully covers liability.
Worked example
Tax Prep — Estimated-Tax Safe-Harbor Buffer
The parent margin-of-safety sizes a buffer against estimation error. Estimated taxes are exactly that: pay enough to clear a safe harbor so a bad income estimate never triggers an underpayment penalty. The safe harbor is the margin of safety.
Install this skill (free, MIT)
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