Understanding Corporate Estimated Tax Payments
Posted by Amanda Ornowski on June 10, 2024
As the most recent quarterly estimated tax payment deadline of June 17 has passed for both individuals and businesses, it's essential for business owners to grasp the rules for computing corporate federal estimated payments.
Four Methods for Calculating Estimated Tax Payments
To avoid penalties, corporations must determine their required estimated tax installment using one of the following four methods:
1. Current Year Method
- Pay 25% of the tax shown on the current tax year's return by each of the four installment due dates (April 15, June 17, September 15, and December 15).
- If no return is filed, pay 25% of the current year's tax.
2. Preceding Year Method
- Pay 25% of the tax shown on the previous tax year's return by each installment due date.
- Note: For 2022, corporations with taxable income of $1 million or more in any of the last three tax years can only use this method for the first installment.
- This method is not available if the prior year’s return covered less than 12 months or if no return with tax liability was filed.
3. Annualized Income Method
- Pay estimated tax based on the annualized taxable income for the months in the current tax year ending before the installment due date.
- This method assumes that income will be earned at the same rate throughout the entire year.
4. Seasonal Income Method
- Suitable for corporations with seasonal income patterns.
- Income is annualized based on the pattern of previous years.
- A complex mathematical test must be passed to qualify for this method.
Corporations are allowed to switch between these methods during the tax year to minimize their estimated tax payments.
Seeking Professional Assistance
Determining the most beneficial method for your corporation's estimated tax payments can significantly reduce your tax bill. For further discussion and assistance, please contact us.
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Amanda joined the Firm with over twelve years of accounting experience. Her expertise includes business and international tax consulting, along with compliance for high net wealth individuals. Her experience spans various industries including investment and manufacturing sectors, privately held companies, and international corporations.