Corporate Estimated Taxes

1. Corporate Estimated Taxes Code Section 6655 By: Stephanie Shields

2. Introduction • Mandatory estimated taxes for C Corporations with tax liabilities of $500 or more. • Estimated taxes paid in four quarterly payments.

3. Calculating Required Payments • Step 1: Estimate the corporations income for tax year at issue • Step 2: Calculate the tax liability • Estimated tax liability includes corporate income tax, alternative minimum tax, environmental tax, and the gross transportation tax.

4. Computing Quarterly Liability • Section 6655 allows four safe harbor methods to compute quarterly estimated tax liability. • Proper use of one of the four safe harbor’s protects the corporate taxpayer from underpayment penalty.

5. Current Year Safe Harbor Preceding Year Safe Harbor Annualized Income Method Seasonal Income Method Safe Harbor Methods

6. Current Year Safe Harbor • Estimate current year tax liability • Required installment payment is 25% of estimated current year tax liability. Example: ABC Corp.., a calendar year tax payer, estimates its tax liability for the year 2000 to be $300,000. Required Quarterly Payment: $300,000 x .25=$75,000

7. Preceding Year Safe Harbor • Estimated taxes based on the preceding year’s tax liability as shown on the corporate return. • Required payment is 25% of the preceding years tax liability. • Previous year’s return must have a positive tax liability. • Easiest method to apply

8. Annualized Income Method • Actual taxable income used to make estimated payments. • Use of standard set of monthly periods: • 1st Installment: Use 1st three months of tax year • 2nd Installment: Use 1st three months of tax year • 3rd Installment: Use 1st 6 months of tax year • 4th Installment: Use 1st 9 months of tax year

9. Required Installment 1st 2nd 3rd 4th Applicable % 25% 50% 75% 100% Required Installment %’s

10. Example ABC Corp.. decides to use the Annualized Income Method. For the 1st quarter installment ABC’s taxable income is $80,000. ABC’s 1st installment: Annualized Income: $80,000 x 12/3 = $320,000 Estimated Tax Due: $108,050 Installment Due: $108,050 x .25 = $27,013

11. Seasonal Income Method • Estimated tax based on seasonal income • Seasonal Income: • Look to the three preceding tax years • Avg. of 70% or more of total income for the year earned for any period of 6 successive months

12. Calendar Year Taxpayer April 15 June 15 September 15 December 15 Payments are credited against unpaid installments in the order they were required to be paid. Fiscal Year Taxpayer Due the 15th day of: 4th month 6th month 9th month 12 month Due Dates

13. Underpayments • Amount of underpayment is the amount paid less than the required payment as calculated by one of the methods. • Penalty for underpayments • Exceptions caused by certain tax legislation

14. Penalty for Underpayment • Penalty equals the amount of interest that accrues on the underpayment. • Interest rate equals the Federal short term rate + 3 percentage points. • Interest is compounded daily. • Underpayment period equals due date of underpaid installment until the day it is satisfied.

15. Overpayments • Can be applied to next year’s tax. • Applied in the order in which the payments are required to be paid. • Quick Refund for overpayments that are at least $500 & at least 10% of the expected tax liability.

16. ANY QUESTIONS? Thank You!