Filing taxes can be stressful, particularly for businesses striving to ensure they have ample cash to cover tax obligations by the due date. To alleviate this burden, consider making quarterly estimated tax payments to the IRS throughout the tax year.
By doing this, you can better manage your cash flow and prevent underpayment penalties when you file your tax return. If you’ve overpaid, you will get a refund!
Key Takeaways
- Corporations make periodic estimated tax payments to prepay a portion of their corporate income tax liability for the current year. These payments are typically made quarterly.
- The IRS requires corporations to make estimated tax payments if they expect to owe $500 or more in taxes during the year.
- Staying compliant with estimated tax payment requirements is crucial for corporations to avoid penalties and potential cash flow issues at the end of the tax year.
- Quarterly estimated tax payments are due on specific dates throughout the year, typically on the 15th of the fourth, sixth, ninth, and twelfth months of the tax year.
What are corporations’ estimated tax payments?
Estimated tax payments are periodic payments, usually made quarterly, that corporations make to the tax authorities during the tax year. The purpose of these payments is to prepay a portion of the corporation’s income tax obligation for the current tax year.
When are corporations required to make estimated taxes?
Generally speaking, if a corporation anticipates its tax liability exceeding a specific threshold, it must make estimated tax payments. The Internal Revenue Service (IRS) requires corporations to make installments of estimated tax if they expect their total tax for the year (minus applicable credits) to be $500 or more. Additionally, quarterly estimated payments are required of limited liability companies (LLCs) that have chosen to be taxed as C-corporations.
Why is it important to pay quarterly estimated taxes?
Corporations must comply with estimated tax payment requirements to avoid penalties and potential cash flow issues at the end of the tax year.
When are quarterly estimated taxes due?
Installments are due on or before the 15th of the fourth, sixth, ninth, and twelfth months of the tax year. For calendar-year filers, the due dates are:
| For the Period | Due Date |
| January 1–March 31 | April 15 |
| April 1–May 31 | June 15 |
| June 1-August 31 | September 15 |
| September 1-December 31 | January 15 (of the following year) |
If any of these dates fall on a weekend or legal holiday, the installment is due on the subsequent regular business day.
How is estimated tax calculated?
The corporation’s estimated tax liability is based on its expected taxable income for the year, taking into account deductions, credits, and other tax factors. The corporation estimates its income and applies the current corporate tax rate to determine the estimated tax payment.
Corporations must generally make estimated tax payments that meet certain safe harbor requirements to avoid penalties. The most common safe harbor is to pay at least 100% of the corporation’s prior year’s tax liability (or 110% if the corporation’s income exceeds a certain threshold). Alternatively, the corporation can make payments based on the current year’s estimated tax liability.
What are the benefits of paying quarterly estimated taxes?
Taxes are pay-as-you-go, which allows you to avoid a cash crunch on the tax deadline. It also provides peace of mind by setting expectations about your tax liability and avoiding the surprise of a large tax bill at the end of the year. Quarterly estimated tax payments enable corporations to spread out their tax obligations over the year, allowing them to manage cash flow better. This is especially important for businesses that experience fluctuating income or seasonal revenue patterns.
Are there penalties for failing to make estimated tax payments?
If a corporation fails to make the required estimated tax payments or underpays, it may be subject to penalties and interest charges. This penalty applies when a corporation’s tax liability exceeds $500 and fails to pay on time at least the smaller of its current year’s tax liability or the previous year’s tax. The penalties vary based on the amount underpaid and the length of the underpayment period.
If the corporation overpaid the estimated tax, you can get a refund in 10–15 days by filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax.
What documents are required?
Form 1120-W, Estimated Tax for Corporations, is used to calculate your company’s estimated tax payment based on your income statement or projections.
How do I pay my estimated tax?
Businesses must use EFTPS, or electronic funds transfers, to send tax payments from their bank account straight to the IRS. The IRS2Go Mobile App allows you to make payments online, by phone, or from your mobile device. For additional payment options, visit the IRS website.
Can Cleer assist my company with its estimated quarterly tax payments?
Absolutely! We include preparing quarterly tax payments with our all-inclusive bookkeeping package. We maintain your monthly income statement and balance sheet, making quarterly estimated tax payments easy. With this proactive approach, you’ll have a clear understanding of your tax liability year-round, minimizing surprises come tax season. Moreover, by closely monitoring your monthly profit and loss statements, you’ll gain valuable insights into your cash flow, empowering you to make informed business decisions and identify potential fundraising opportunities.
If you have any further questions or need help navigating the US multi-tiered income tax system, schedule a consultation, or feel free to contact us and let our tax professionals handle your tax needs.
