{"id":2489,"date":"2026-06-17T14:04:29","date_gmt":"2026-06-17T14:04:29","guid":{"rendered":"https:\/\/denvermovingchronicle.com\/?p=2489"},"modified":"2026-06-17T14:04:29","modified_gmt":"2026-06-17T14:04:29","slug":"five-ways-to-avoid-tax-penalties-in-2026","status":"publish","type":"post","link":"https:\/\/denvermovingchronicle.com\/?p=2489","title":{"rendered":"Five ways to avoid tax penalties in 2026"},"content":{"rendered":"
\n

As a certified public accountant, the most common question I hear in the spring is, \u201cHow much do I actually have to pay the IRS right now?\u201d In a perfect world, the IRS wants 90% of your total tax liability paid \u201cratably\u201d (equally) throughout the year.<\/p>\n

The problem? Most successful people don\u2019t have perfectly predictable incomes. Whether it\u2019s a year-end bonus, a business windfall, or a volatile stock market, hitting that 90% target is like trying to pin a tail on a moving donkey. If you miss, you face underpayment penalties.<\/p>\n

Fortunately, the tax code provides several \u201csafe harbors\u201d and strategic maneuvers. Here are five options for handling your 2026 tax obligations.<\/p>\n

<\/div>\n
    \n
  1. The December miracle: late-year withholding<\/strong><\/li>\n<\/ol>\n

    One of the most powerful \u201chacks\u201d in the tax code involves the definition of withholding. Unlike estimated tax payments (which are credited on the day you mail the check), withholding is treated as being paid equally throughout the entire year, regardless of when it actually happens.<\/p>\n

    The Strategy: If you realize in November that you\u2019re underpaid, you can\u2019t simply mail a massive, estimated tax payment to erase previous quarterly shortfalls\u2014the penalty for the early quarters is already locked in. However, you can ramp up your withholding on your final December paychecks or take a \u201ctax only\u201d IRA distribution with 100% federal withholding.<\/p>\n

    The Benefit: Because the IRS treats that December withholding as if it were paid throughout the year, it can retroactively eliminate underpayment penalties for the entire year.<\/p>\n

      \n
    1. The \u2018Rearview Mirror\u2019 safe harbor<\/strong><\/li>\n<\/ol>\n

      If you want to be \u201cbulletproof\u201d against penalties regardless of how much you earn this year, look at last year\u2019s tax return. This is the most common strategy for high-income earners.<\/p>\n

      The Strategy: Pay in an amount based on your 2025 total tax. If your adjusted gross income is $150,000 or less, pay 100% of last year\u2019s tax. If your AGI is over $150,000, you must pay 110% of last year\u2019s tax.<\/p>\n

      The Benefit: Even if you sell a business for a $10 million profit in 2026, you will not owe any penalties in April 2027 as long as you hit that 110% of the 2025 benchmark through equal quarterly installments.<\/p>\n

        \n
      1. The \u2018Pay-As-You-Go\u2019 (annualized) method<\/strong><\/li>\n<\/ol>\n

        If your income is seasonal\u2014for example, you\u2019re a consultant who gets paid in the fourth quarter, or you have a concentrated stock position you plan to sell in the summer\u2014paying equal amounts in April and June feels unfair and creates a cash flow crunch.<\/p>\n

        The Strategy: Use the annualized income installment method. This requires performing a \u201cmini tax return\u201d calculation every quarter based on what you have actually earned to date.<\/p>\n

        The Benefit: It allows you to pay very little in the early quarters when income is low and only \u201ccatch up\u201d when the big checks actually arrive. It\u2019s more paperwork, but it keeps your cash in your pocket longer.<\/p>\n

          \n
        1. The \u2018Strategic Penalty\u2019 approach<\/strong><\/li>\n<\/ol>\n

          Sometimes, the most mathematical move is simply not to pay until April. The IRS underpayment penalty isn\u2019t a criminal fine; it\u2019s essentially an interest charge for using the government\u2019s money.<\/p>\n

          The Strategy: If you have an investment opportunity or a high-yield environment where your money can earn more than the IRS interest rate, you might choose to underpay intentionally.<\/p>\n

          The Benefit: As of early 2026, the federal underpayment rate is hovering around 7%. If you are confident you can net a significantly higher return elsewhere, or if you simply value the liquidity, paying the interest in April might be a calculated business decision.<\/p>\n

            \n
          1. The hybrid strategy: minimums plus catch-up<\/strong><\/li>\n<\/ol>\n

            Many savvy investors combine these methods. They set their quarterly payments to exactly meet the 110% safe harbor (strategy No. 2) to guarantee no penalties, and then they hold the \u201cexcess\u201d tax they know they will eventually owe in a high-yield savings account or short-term Treasurys until April 15.<\/p>\n

            The Benefit: You get the security of no penalties, the simplicity of equal payments, and the interest bonus on the remaining balance.<\/p>\n

            You have options<\/p>\n

            Whether you prefer the set-it-and-forget-it 110% safe harbor, the surgical precision of annualizing your income, or the late-year withholding bailout, you don\u2019t have to be a victim of an unpredictable income year. And remember that your state might have different rules.<\/p>\n

            This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https:\/\/www.morningstar.com\/personal-finance.<\/p>\n

            Sheryl Rowling, CPA, is an editorial director, financial adviser for Morningstar.<\/p>\n

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            As a certified public accountant, the most common question I hear in the spring is, \u201cHow much do I actually have to pay the IRS right now?\u201d In a perfect world, the IRS wants 90% of your total tax liability paid \u201cratably\u201d (equally) throughout the year. The problem? Most successful people don\u2019t have perfectly predictable […]<\/p>\n","protected":false},"author":1,"featured_media":2488,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1101,1102,149,152,1103,1104],"tags":[4075,1944,1934,1946,4076,1948,4077],"class_list":["post-2489","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-0-no-apple-publish","category-1gridmagazine","category-a-town-magazine","category-sentinel-lifestyle","category-uncategorized","category-z-other-galley","tag-certified-public-accountant","tag-cpa","tag-irs","tag-morningstar","tag-safe-harbors","tag-sheryl-rowling","tag-strategic-penalty"],"yoast_head":"\nFive ways to avoid tax penalties in 2026 - Denver Moving Chronicle<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/denvermovingchronicle.com\/?p=2489\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Five ways to avoid tax penalties in 2026 - Denver Moving Chronicle\" \/>\n<meta property=\"og:description\" content=\"As a certified public accountant, the most common question I hear in the spring is, \u201cHow much do I actually have to pay the IRS right now?\u201d In a perfect world, the IRS wants 90% of your total tax liability paid \u201cratably\u201d (equally) throughout the year. 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