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Contemporary Tax Practice
Tax Tutorial Module 4 — C Corporation Taxation – Tax Computation
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Topic 2: C Corporations – Filing Requirements, Estimated Taxes and Extensions
[IRS Materials: Publication 542 and Form 1120 Instructions]

C. Corporate Estimated Tax Requirements

1. Corporations must generally make quarterly estimated tax payments if it expects the estimated tax for the year to be $500 or more.

2. Installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s tax year.

3. The amount of the installment due is the lesser of:

  • 25% of the estimated tax for the current year, or
  • 25% of the income tax shown on the previous year’s return; however, a “large corporation,” one with $1 million of “modified” taxable income (without NOL or capital loss carrybacks or carryovers) in any of the 3 previous tax years, may use this exception for the first installment only.

4. The corporation is subject to an underpayment penalty for failing to pay in the minimum amount determined under 3 above.

5. If a corporation determines that it needs to revise their estimated tax liability, they may have to refigure the required installments. In such a case, an immediate catch-up payment should be made to reduce any penalty related to earlier installments.

Example – X Corporation estimated its 2009 tax liability to be $100,000, and made a first estimated tax payment on 4/15/09 for $25,000. In May, X determined that their estimated tax liability for 2009 should be $120,000. Thus, after the second estimated tax payment, X should have paid in $60,000. In this case, X should pay $35,000 with its 2nd payment ($60,000 - $25,000 paid on 4/15/09) to catch up the shortage.

6. Unless they are exempted under the rules, taxpayers whose aggregate annual deposits of certain taxes, such as employment taxes, exceed $200,000 are required to use electronic funds transfer. Once taxpayers exceed the $200,000 threshold, they have a one–year grace period before being required to use EFT and then they are required to use EFT in all later years even if their deposits fall below the threshold. The tax deposits used to calculate the threshold are the depository taxes. These requirements apply to return periods beginning after Dec. 31 of the year following the year in which the threshold is exceeded. For example, a taxpayer who exceeds the threshold during Year 1 is required to use EFT for return periods beginning in Jan. of Year 3.

7. Absent reasonable cause a taxpayer required to deposit federal taxes by electronic funds transfer (EFT) is subject to a failure to deposit penalty if the taxpayer either (a) deposits the taxes by means other than EFT or (b) deposits the taxes by EFT, but does so after the deposit due date. However, if the taxpayer deposits the taxes by means other than EFT, but makes his deposit in the full amount due and by the due date, his penalty is limited to a 10% penalty, and the corporation is not subject to a special 15% penalty that might otherwise apply.

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