Tax season may still be months away, but it’s never too early to make sure you’re on track. In this month’s newsletter, we’re highlighting how to avoid costly IRS underpayment penalties—and what steps you can take before year-end to stay ahead.

Avoiding Underpayment Penalties
Higher-income and self-employed taxpayers already send a big portion of their earnings to the IRS—and no one wants to add penalties to that bill. For 2025, the IRS applies a 7% interest rate, compounded daily, on the amount of any underpayment.

If you’ve owed taxes in recent years or expect higher income this year, it’s important to estimate your tax liability early. To avoid underpayment penalties, make sure one of the following applies:
•You’ve paid at least 90% of your current year’s tax liability, or
•You’ve paid 100% of your previous year’s tax liability, or
•You’ll owe less than $1,000 when filing your return.

For higher-income taxpayers, the threshold is a bit higher—the safe harbor increases to 110% of the previous year’s tax liability if your adjusted gross income exceeds $150,000 for married couples filing jointly ($75,000 if married filing separately).

If your W-2 withholding isn’t covering enough, despite claiming minimal exemptions, you have a couple of options:
•Update your Form W-4 with your employer to include an additional dollar amount withheld each pay period.
•Make quarterly estimated tax payments directly to the IRS.

The final quarterly payment deadline for the 2025 tax year is January 15, 2026. If you’re worried about a large tax bill come April, reach out to your financial planner. A year-end tax projection can help determine how much to send to the IRS before the fourth-quarter cutoff and help you stay penalty-free.