Business FinancesQuestion 336 of 1605
A contractor that fails to make required quarterly estimated tax payments to the IRS during the year is most likely to face:
a.Automatic suspension of the CSLB license
b.A reduction in the contractor's bonding limit
c.A requirement to switch to accrual accounting
d.An underpayment penalty when the annual return is filed
Explanation
When a taxpayer does not pay enough tax through estimated payments or withholding during the year, the IRS may assess an underpayment penalty. Estimated payments are meant to keep tax current as income is earned.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)