What is the minimum amount that a self-employed taxpayer must prepay to avoid underpayment penalties?

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The correct answer relates to the requirements for self-employed taxpayers to avoid underpayment penalties by prepaying their taxes. A self-employed individual can avoid these penalties by prepaid tax amounts that equal at least 90% of their current year's estimated tax liability or 100% of the tax shown on their prior year's return, provided the prior year's return covered a 12-month period. This option is particularly relevant for individuals who may have had significantly lower income in the prior year, allowing them to potentially reduce their current year's payment requirements based on last year's figures.

The significance of option C lies in its provision for taxpayers to utilize their prior year's tax amount as a baseline, which can often simplify the calculation for those who may not be certain about their current year's income projections. This option offers a safeguard and can be less burdensome for taxpayers who have experienced fluctuations in their income.

Other options suggest different thresholds for prepayment based solely on the current year's estimated tax or a specific calculation that does not include the relevant allowances provided to those comparing their current liability to last year's circumstances. Although the current year's tax percentages may provide an alternative method to avoid penalties, the ability to use 90% of the prior year's tax allows for greater flexibility, especially for self-employed individuals with

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