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Mr. Bagley, a self-employed musician, timely filed his Year 1 income tax return, which showed an AGI of $180,000 and total tax of $45,000. He expects his Year 2 total tax to be $70,000. What is his required payment through withholding and estimated tax for Year 2

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Answer:

$45,000

Explanation:

Since we assume that Mr. Bagley calculated his next year's taxes correctly, in order to determine the federal tax withholding, we should divide the total expected taxes by 4. Generally self-employed pay federal tax withholdings in quarterly payments.  

Mr. Bagley has two options:

  1. the first option is to pay quarterly taxes according to last year's taxes = $45,000 / 4 = $11,250 per quarter. This would be the required payment.
  2. Mr. Bagley's second option is to pay $70,000 / 4 = $17,500 every quarter in order to lower his final annual payment. He can choose to do this, but he is not required to do so.

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