Q:

Subject: Quarterly Tax Filings with a C Corporation

 

Mr. Kerstetter,

    Our company just became a full C corporation on 01JAN07 after being an LLC from start of business.  I am currently working with an outside accounting firm that is compiling our financials for 2006, I have recently come on board here (first day was 05FEB07) since the company has decided they needed a Controller since converting to a C Corp. and have to advise the owner as to his tax liability and payments. 

    My question to you is this:  After working with our Accounting firm we are about to realize $ 375,000- for 2006 before taxes.  In preparing for the 2007 tax year, I am currently accrueing for taxes based on 2006 Net Income.  On the quarterly filings what can I expect to pay out to the IRS????  I would think that the minimum would be $ 93,750- ($ 375,000 / 4) to avoid any penalties or charges.  Is there some way we can mitigate this payment to the end of year since we just became a "New" corporation and really don't have a strong performance record in earnings???  Any advice would be helpful.

 

Thanks,

A:

I'm a little puzzled as to why you are asking me this because this is really the kind of thing that should be discussed with the corp's professional tax advisors. 

Basically, as with individual income taxes, there are two main options with estimated tax payments.  You can pay in what you expect the actual taxes to be for the current year in four quarterly installments so that there is a zero balance due with the 1120; or you can pay in the least required by law so as to avoid late payment penalties, and then pay any remaining balance by the due date of the 1120.

For most corporations, those that have taxable income of less than one million dollars, it generally works out for the second option that you can pay in the lower of the previous year's tax or the expected current year's tax.

If 2006 was a boom year and 2007 looks as if it will have a much lower taxable income, there is no sense in paying in the same as the 2006 tax was.  You should calculate the actual tax for each portion on the current year and make payments accordingly.

IRS has Form 1120-W  for calculating corp estimated taxes.  It does allow for annualization of income, in cases where profits are not earned evenly throughout the year, with corresponding adjustments in the estimated tax payments.

Good luck.

Kerry Kerstetter

Follow-Up:

Mr. Kerstetter,

   Thanks for your valuable time in responding to my question.  I will be working with the company's tax preparer's but wanted to get a little insight into how I can minimize our tax payments in the next couple of months.  I was really impressed with your website and knowledge on the subject matter. Too bad you are not accepting any new clients or I may make a pitch to have our company work with you.  Please let me know if you are going to allow new clients anytime soon.

 

Thanks,

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/21/2007 11:54:00 AM Send this post: