Pre-paying your taxes thru out the year and owing nothing in April rather then using that tax money to invest for a year and paying them in April is usually a better option.
Emphasis added.
Be careful to avoid underpayment penalties. See line 38 of Form 1040 and the associated Form 2210.
I looked it up and looks like it's a 0.5% penalty that can increase over time (capped at 25% yikes!). Since the OP said his income was on the low side I figured it didn't apply to them and that maybe they weren't taking all the taxed advantaged deductions they could to lower their taxes. In any case I'm sure it's a relief to the OP to have all that paid off and kudos to them!
Right. They may not apply to the OP, but I thought they might apply to others reading the thread.
I suppose it is not for this forum, but I don’t understand how the underpayment penalties work. One year we received a refund, yet somehow had to pay a minor underpayment penalty (As I recall it was about $15). It made no sense to me.
The most likely scenario is that you had income variability throughout that year. From the instructions:
"You may owe this penalty if:
[...]
• You didn't pay enough estimated tax by any of the due dates. This is true even if you are due a refund."
I don't think it's very common for the IRS to enforce that though, because they would have to somehow know about your income and withholding / estimated payment pattern that year.
