Penalties

Facts

Enter the following information for a sample client:

Program Considerations

• The program determines whether the taxpayer is subject to the underpayment penalty based on entries throughout the program. To provide the information necessary for the program to determine if the taxpayer is subject to the underpayment penalty, enter the taxpayer's adjusted gross income and tax from the prior year and the date the current year's return will be filed in Screen 8, Penalties & Interest.
• The most important input required for any penalty calculation is the Filing Date. If you leave this field blank, the program defaults to April 15, 2005. A date earlier than April 15, 2005 limits any underpayment penalty. The program also uses the date entered to calculate late return penalty and interest.
• Form 2210 prints when the program calculates an underpayment penalty. The tax payments carry from entries in:
  • Quarterly estimated tax payments (Screen 6, 2005 Estimated Tax Payments),
  • Advanced earned income credit payments (Screen 42, Household Employment Taxes), and
  • Federal withholding input fields in Screen 10, Wages, Salaries, Tips, Screen 11, Interest Income; Screen 12, Dividend Income; Screen 13, Pensions, and Screen 14.1, Miscellaneous Income.
• Form 2210 does not print when the taxpayer's 2004 tax liability was zero or when an underpayment is not shown in Form 2210, Part II or Part III.
• The program prints Form 2210, Part II - Short Method when the taxpayer paid estimated tax in four equal amounts on the prescribed due dates or when the taxpayer did not make estimated payments and the only credit for payment was federal income tax withholding. The program does not use the Short Method when the taxpayer annualizes income or has unequal withholding.
• For the Late Return Penalty and Interest section, enter 1 in any field in this section and the program calculates the penalty or interest due because the return was filed after the due date. You can enter a specific dollar amount to override any calculation. The penalty amounts print at the bottom of Form 1040, page 2 and the program creates worksheets detailing the calculation of each of the amounts.
• The program uses the interest rate from Form 2210 for the first quarter (April 15, 2006 - June 30, 2006) unless another interest rate is entered in the Options.

  Note: The Lacerte program calculates interest on late returns based on the entries in the Interest Rates tab of the Options and requires that all applicable quarters up to and including the filing date be entered in the respective fields. Failure to enter the IRS or state interest rates for any given quarter will cause incorrect late interest calculations. For returns filed after the last listed quarter, you must manually calculate late interest and enter it in the appropriate input field.

How?

To calculate penalties:

1. Open the sample client.
2. Open Screen 8, Penalties & Interest (2210) from the Contents tab.
   
3. Enter the information from the Penalties & Interest (2210) table above in the appropriate input fields.

Tips & Shortcuts

Instructions related to this exercise and other related items can be found by clicking the Help Me button while in the Penalties & Interest screen.

Review

You should have entered the information required to trigger Form 2210 and late penalties for the sample client and produced the following results on Form 1040:

*These items are included in a worksheet.

Troubleshooting

Problem: I'm not getting late penalties on Form 1040.

Solution: Mandatory entries for the automatic calculations are: Filing date, IRS interest rates, and the 1=automatic entries.

Next >>