Question:
Is this payed regardless of whether the company is making a profit or not?
Answers:
This is a bit complex so please bear through the basic explanation below.
1.First of all, this only applies to a “C” corporation. An “S” corporation is taxed at the shareholder level (with rare exceptions for which your CPA will counsel you) so any taxes attributable to the “S” corporation’s income would be included in the estimated payment made by the owner(s). (If your corporation is a “C” corporation, please look into converting it to an “S” corporation with the help of your CPA – you may be paying too much in tax unnecessarily.)
2.Secondly, different rules apply to “large” corporations, which are corporations with at least $1 million of modified taxable income in any of the last 3 years and corporations that are not define as “large.”
3.Assuming you are not a “large” corporation, there are basically three ways to figure out your estimated tax payments, which are required if the corporation is expected to have a tax of $500 or more for the current taxable year. Since the lowest corporate tax rate is 15%, you would be required to make estimated tax payments if your corporate taxable income for the year is $3,333 (15% x 3,333 = $500).
4.The first method is to make a payment of 25% of the income tax that the corporation will show on its tax return for the current year. Estimate your 2007 income, multiply it by the appropriate tax rate and then multiply the resulting tax by 25%.
5.The second method is to make a payment of 25% of the income shown on the corporation's return for the previous year. To use Method 2:
a.The corporation must have filed a return for the previous year,
b.The return must have been for a full 12 months, and
c.The return must have shown a positive tax liability (not zero).
If you meet all three conditions above, take a look at your 2006 return and take 25% of the final tax amount and use that amount.
6.The third method involves using the actual tax for the time period involved, i.e., calculating the tax based on the income to date. This is the method that should be used if the corporation’s income is seasonal or expected to vary during the year and is calculated using form 1120-W.
The last method would seem to apply to your corporation, since it sounds like it is not making a profit right now. You would not have to make any estimated taxes right now (they are done on a quarterly basis (on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year) but if the corporation does start making a profit then you may have to “catch-up” on your payments in the next quarter. Please be sure you make any payments in accordance with IRS rules.
Please note there are exceptions to basically everything outlined above. You really need to take a look at IRS publication 542, Corporations, available on the IRS website at http://www.irs.gov/publications/p542/ind... Better yet, find a qualified CPA to handle your affairs or at least help you understand the process better.
Who Must Pay Estimated Tax
If you had a tax liability for 2006, you may have to pay estimated tax for 2007.
This article contents is post by this website user, HiAnswer.com doesn't promise its accuracy.
More Questions & Answers...