Underpaid estimates and Form 2210
A taxpayer with a big untaxed income spike who didn't pay in enough during the year. The lesson is the safe-harbor rule: how much you must prepay to avoid the underpayment penalty.
Taxpayer facts
Who this is and what their year looked like.
Gordon is single, 62, and still working in Las Vegas, Nevada. In 2025 he took a large distribution from his traditional IRA on top of his salary — and had no tax withheld on it.
His paycheck withholding was set for his salary alone, so he came up short overall. This return is about whether an underpayment penalty applies.
- NameGordon T. Reyes
- Date of birth04/11/1963
- SSN530-42-8817
- Age (as of 12/31/2025)62
- Filing statusSingle
- DependentsNone
- OccupationOperations manager
- 2024 (prior year) total tax$9,000 (2024 AGI was under $150,000)
- 2025 estimated tax paymentsNone made
- Address7300 W Cheyenne Ave, Apt 12, Las Vegas, NV 89129
- ResidencyNevada, full year (no state income tax)
Source documents
Work from these the way you would a real client's paperwork. Everything is fictional.
Objectives
What a correct return should capture.
- Build the 2025 return: the wages plus the taxable IRA distribution for AGI, less the 2025 single standard deduction ($15,750), down to taxable income and the income tax.
- See the problem: only the tax withheld from the paycheck was prepaid, and nothing was withheld from the IRA distribution.
- Apply the safe-harbor rule. To avoid an underpayment penalty you must have prepaid the SMALLER of 90% of the current-year tax or 100% of the prior-year tax (it's 110% if prior-year AGI was over $150,000, which it wasn't).
- Figure the required annual payment and compare it to the withholding he paid in to see whether a penalty applies.
- Compute the balance due before any penalty: the income tax less the withholding.
- Understand the penalty: it's interest on each quarter's shortfall at the IRS underpayment rate (7% across all four 2025 periods), with withholding treated as paid evenly across the four periods. Figure each quarter's shortfall and the interest on it.
- Check Form 2210 Part II: if no box applies, the form itself is not filed. The software computes the penalty, carries it to Form 1040 line 38, and keeps Form 2210 as a worksheet copy in the file.
- The takeaway: work out how much more withholding would have met the prior-year safe harbor. Meeting it removes the penalty even when a balance is still due at filing.
- Note that Nevada has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.