Submitting estimated taxes for corporations is crucial to avoid any last-minute surprises when it comes to tax payments. This article provides a comprehensive guide on how to submit estimated taxes for corporations to the IRS, ensuring a smooth and hassle-free process.
Who Needs to Pay Estimated Taxes for Corporations and When?
Corporations are required to make estimated tax payments if they expect to owe at least $500 in taxes when filing their return. However, even S corporations, which do not pay income tax, are still obligated to file estimated payments if certain criteria are met. These criteria include corporate taxes on built-in gains, excess net passive income, and investment credit recapture totaling $500 or more.
To calculate C corp estimated tax payments, the IRS recommends using Form 1120-W, while Form 1120-S is used for S corporations. Payments are due on the 15th day of the fourth, sixth, ninth, and 12th months of the tax year. If the due date falls on a weekend or holiday, the payment is due on the following business day. For corporations with a calendar year tax year, payments are due on April 15th, June 15th, September 15th, and December 15th. It is important to note that the payment schedule for corporations differs from that of individuals, where the last payment is due on January 15th.
Calculating C Corp Estimated Tax Payments
To calculate C corp estimated tax payments, the 1120-W form is used. The process is relatively straightforward:
1. Calculate your taxable income.
2. Multiply the total by the corporate tax rate, which is currently set at 21 percent.
3. If eligible, claim any tax credits and subtract them from your tax bill. The IRS website provides instructions on how to calculate credits.
4. Add any other taxes owed, such as recaptured tax credits or base erosion minimum tax.
5. Subtract any refundable credits, such as the federal fuel tax credit. If the final result is less than $500, you are not required to make estimated tax payments.
6. Enter the previous year’s tax amount. If the previous year’s bill is lower than the anticipated bill for the current year, use the previous year’s amount as the basis for estimated payments.
7. Divide the figure used as the basis by four. Pay 25 percent of the total bill on each of the four due dates. If your income varies throughout the year, the 1120-W form includes a worksheet for calculating adjusted seasonal installments.
Making Electronic Estimated Tax Payments
As a corporation, it is mandatory to use electronic funds transfer to make federal tax deposits, including employment taxes, excise taxes, income tax, and estimated tax payments. The recommended method is the free Electronic Federal Tax Payment System (EFTPS). You can choose to use the system yourself, arrange for your bank or tax professional to handle it (note that they may charge a fee), or opt for a same-day wire payment through your bank.
By following these steps and utilizing the appropriate forms and payment methods, corporations can ensure that their estimated tax payments are submitted accurately and on time, avoiding any penalties or complications with the IRS. Remember, staying on top of estimated tax payments is essential for maintaining financial stability and compliance with tax regulations.
