Corporate Estimated Tax Payments

A corporate estimated tax payment is a method of paying taxes when they are not withheld from employee paychecks. This article will discuss corporate estimated tax payments.

Corporations, like individuals and other pass-through entities, generally must pay estimated tax if they expect to owe $500 or more in taxes when their return is filed. The IRS charges penalties for underpayment and late payment of estimates. Typically, corporations make quarterly estimated tax payments based on their projected taxable income for the year. However, there are some exceptions. For more information on the estimated tax payments a corporation must make and instructions on calculating these payments, refer to the Instructions for IRS Form 1120-W. The instructions also include an explanation of the underpayment penalty and how to determine if your corporation is liable for it.

Do I Have to Make Corporate Estimated Tax Payments
Corporate Estimated Tax Payments 1

Do I Have to Make Corporate Estimated Tax Payments?

The IRS suggests taking a simple quiz if you are uncertain whether you need to make estimated tax payments. First, determine the amount of tax you owed last year after subtracting your income tax withholding and credits. Then, estimate how much you will owe this year after subtracting your withholding and credits. Add that to the previous year’s tax and divide by 4. The result is your estimated annual tax.

If you believe that you will overpay your estimated taxes, you can apply for a quick refund of the overpayment by filing Corporation Application for Quick Refund of Overpayment of Estimated Tax (Form 4466). There are special rules for farmers, fishermen, and certain higher-income taxpayers. For more information, see Publication 505, Tax Withholding and Estimated Tax.

Corporate Estimated Tax Due Dates

For corporations with a calendar tax year, the due dates for their estimated tax payments are the same as those for individuals: April 15, June, September, and December. If you have a fiscal tax year, your due dates are the same as those for individuals, but the last quarterly payment is due on January 15 rather than December 15.

You must make your estimated tax payments by electronic funds transfer. You can do this yourself or arrange for your bank to do it for you. The IRS website has a link to a free, easy-to-use electronic tax payment system. You can also have your accountant or a tax preparation firm make these payments for you, but they may charge a fee.

How to Figure Estimated Tax as Corporate
Corporate Estimated Tax Payments 2

How to Figure Estimated Tax as Corporate?

There are several methods for computing a corporation’s estimated tax payment, but the most common is the regular installment method. This is the most simple and straightforward way to calculate the estimated tax payments a corporation must make. It is based on the regular installment rule, which states that each estimated payment due must be equal to one-fourth of the corporation’s anticipated total tax liability for the year, plus any applicable penalty and interest. This is the method that most taxpayers, including individuals, use.

The process for figuring the amount of estimated tax you need to pay is relatively simple. Simply add up all your corporation’s anticipated income for the year, and subtract any credits you can claim (such as recaptured tax credits or base erosion minimum tax). The remainder is your estimate of your total corporate tax liability. The IRS provides a worksheet for this purpose in Form 1120-W — for C corporations — or Form 1120-S for S corporations. The IRS website also has a video tutorial on how to use the worksheet.

As you’re figuring out how much to pay in quarterly estimated taxes, you should also keep in mind that you may be able to avoid the need for quarterly payments by having your employer withhold more tax from your paychecks. To change the amount being withheld from your paychecks, complete a new W-4 with your employer. If you’re a sole proprietor or single-member LLC, your estimated tax payments are shown on your personal tax return on Schedule C – Profit or Loss from Your Business. You can download this form from the IRS website or include it with your Form 1040 tax return. Similarly, the share of profits of a partnership or multiple-member LLC is shown on Schedule K-1, which is included with your personal tax return.

All corporations that reasonably expect to have an income tax liability to this State of more than $500 for the taxable year are required to file and pay estimated tax. This requirement applies to all corporations, financial institutions, and unincorporated businesses. This law, which took effect in 2005, automatically charges penalties for underpayments of estimated taxes rather than requiring auditors to manually add them. In addition, the amount of interest charged on underpayments of estimated taxes is now compounded daily.

Corporate Estimated Tax Payments20242023
Estimated Tax Payment Due DatesApril 15, 2024April 15, 2023
June 15, 2024June 15, 2023
September 15, 2024September 15, 2023
December 15, 2024December 15, 2023
Percentage of Tax Liability to be Paid100%100%
Safe Harbor Thresholds for Avoiding Penalties90% of current year’s tax liability or 100% of previous year’s tax liability (whichever is lower)90% of current year’s tax liability or 100% of previous year’s tax liability (whichever is lower)
Annualized Income Installments for Seasonal BusinessesYesYes
Exceptions for Small CorporationsIf the total tax liability is less than $500If the total tax liability is less than $500

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