REG - ESTIMATED TAXES - Individual and Corporations

When are estimated payments due?

April 15, June 15 and Sept 15. In this way, the IRS expects a self employed taxpayer to have all their year 1 taxes paid by Jan 15 of year 2. By the time their 1040 has been filed, most of their taxes have already been paid

What are corporations tax payment estimates?

April 15, June 15, Sept 15, and Dec 15

Raz, an individual taxpayer has to pay estimated tax for the current year to avoid penalty. Prior year AGI, 170k. For the current year, Raz may avoid the penalty for underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of: 1) 100% of the prior year's tax liability paid in four equal installments. 2) 90% of the tax on the return for the current year paid in four equal installments.

1) You need 110% of prior year. 2) is 90% of current year (so correct) 1 is wrong 2 is correct

Bust Corp, a calendar year C corp had an NOL and zero tax liaibility for year 4. To avoid the penalty for underpayment of estimated taxes, Bust Corp could compute its 1st QTR year 5 estimated tax payments using the 1) Annualized income method 2) Preceding year method

1) you can use the annualized income method whenever you want 2) you cannot use the preceding year method since you had an NOL

What are the rules for last year (if you made more than 150k agi)

110/100

Berg Corp, a C corp had a federal income tax liability of 32k for each of the last 2 years. The tax for the current year is 37k. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable? 37k 32k 33,300 28,800

32k. They can use 100% of Py.

What are the underpayment penalties for corporations?

500 bucks Penalties are assessed if not enough tax is paid on time and the penalty is based on the amount shown as due on the tax return

What are the rule for this year?

90/100

What is it? Estimated Tax-C Corps

A (small) C corp must pay the lesser of: 100% of the tax shown on the return for the current year... or 100% of the tax shown in the prior year. (this part only works if they paid taxes the prior year). aka, cant do this if you made no money last year

Reasonable cause exception?

A cause outside the control of the taxpayer such as the shelter in place order during the Coronavirus, is a reasonable cause exception and many were late with their APR 15 2020 estimated tax payment which should have been their first tax payment for calendar year 2020.

Estimated taxes - large corps

A large corporation, a corporation whose taxable income is 1M or more, in any of its three preceding tax years, can use the preceding year exception only for its first installment. The other installments must be based on current year's tax to avoid a penalty.

Why is the current year difficult?

Because you don't always know what the current year payments will be. Especially if you are in the trades. You dont know what works will be coming and how much. When you get work, you work.

Raz, an individual taxpayer has to pay estimated tax for the current year to avoid penalty. Prior year AGI, 70k. For the current year, Raz may avoid the penalty for underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of: 1) 100% of the prior year's tax liability paid in four equal installments. 2) 90% of the tax on the return for the current year paid in four equal installments.

Both are correct

Who can use the annualized income method?

Both individuals and corporations.

Which of the following is correct with regard to penalties for failure to pay estimated taxes? a) Individuals may use the annualized income method, corporations may not b) Corporations may use the annualized income method, individuals may not. C) Corps and individuals may use the annualized income method d) Neither can use it

C) Corps and individuals may use the annualized income method

For year 20, the last installment of estimated taxes for a corporation are normally due?

Dec 15, year 20

Brad and Laura Scher's Year 20 Tax return included the following: Reg tax before credit 12,000 CY fed est tax payments 11,100 Tax credits 800 Fed income tax withheld 500 What amount, if any represents the overpayment of 2020 taxes? 0 400 500 900

IDK how this calc is done but the variance is 400. The answer is 400 .

What is the estimated are required by the IRS, penalties are due....

If the amount of taxes due upon April 15th are more than 1k. The IRS wants to know they will get paid. It's better to pay too much than get a penalty for not having enough taxes paid in.

To avoid penalty, the final estimated tax payment for individuals in Year 20 is due.... Dec 15, 20 Dec 31, 20 Jan 15, 21 Apr 15, 21

Jan 15, 21. Allows you a butt ton of time to get ready for April 15. You may have a slight amount carry over but last payment should be submitted Jan 15

When is the last payment for self employed taxpayers?

Jan 15. Everything will have been paid well in advance of April 15.

Do corporations get to pay 90% of current year like individuals?

NO

If a refund is due, is a late filed return penalized?

NO> WHY? Because you didn't owe on the return.

Less than 1k due at time of filing?

No penalty imposed

More than 1k in taxes due at time of filing?

Penalty imposed

Lark Corp had a NOL in Year 19. For year 20, estimated income taxes may be based on? a. 100% of current year tax b. 100% of prior year tax c. the lesser of 100% of py tax or 100% of cy tax d. 90% of cy tax

a. They had an NOL last year so they can't use last years. 100% of current year tax

Sid and Roberta Zimmer are self employed. AGI for year 1 was 219k. They paid 28k in taxes. For year 2, their total tax liability is 29k and AGI of 237k For year 2, the minimum estimated tax to avoid a penalty is? '' 28k 29k 30800 26100

So since their AGI is above 150k... They can either do 100% of CY or 110% of PY (not 90% as we have over 150k agi) So CY is 19k * 90% = 26100 or 110% of prior year = 30800. Least amount they can choose is 26100.

Sid and Roberta Zimmer are self employed. AGI for year 1 was 119k. They paid 18k in taxes. For year 2, their total tax liability is 19k and AGI of 137k For year 2, the minimum estimated tax to avoid a penalty is? '' 18k 19k 17100 16200

So since their AGI is under 150k... They can either do 90% of CY or 100% of PY (not 110% as we dont have over 150k agi) So CY is 19k * 90% = 17100. or 100% of prior year = 18k. Least amount they can choose is 17100.

In year 20, Horace is single with current year AGI of 66k. Horace paid 7k in withholding but his total income tax in year 20 is 8500. His year 20 tax return is showing a tax liability balance of 1500 as he gets ready to file on April 15, year 21. Horace will be subject to an underpayment penalty unless his total income tax paid in PY was no more than? 8500 7000 1500 7650

So what do we know here? Horace has AGI of less than 150k. We use 90% of CY or 100% of PY. Whichever is less. Horace has a balance of 8500 that is due for year 20 income tax. He must pay in at minimum 7650. or We calculate that it's 100% of tax payment... PY = 100% of tax payments. Tax payments submitted = 7k. This means that horace wouldn't be subject to tax penalties if his PY income tax was 7k

What do extensions allow you to do?

They allow you to have additional time to file the return, not pay the return. If taxes are due, they need to be paid on time. Extensions will help to avoid the failure to FILE on time penalty. You still need to make ESTIMATED TAX PAYMENTS.

What do most self employed do with overpayments?

They don't opt for the refund. They apply them to next years estimate

Self employed

They need to remit their own taxes to the state - fed

Employed

This is already figured out. They are likely to get a refund check for excess w-2 withholdings and FICA.

What is the annualized income method?

This may be used if the taxpayer's income varies. Even modestly during the year. Extreme cases like ski resort, or beach resort could use the annualized income method. There is no AGI limitation. Criteria would be based on whether the business is seasonal.

What's the safe harbor rule?

You can pay 90% of the current year withholding taxes and not get penalized. less than 150 AGI = 100% PY Over 150 AGI = 110% PY

Backup Withholding

a required withholding from an bank account / investment account that results when the customer refuses/fails to provide a tax identification number WHY? Because the bank must send IRS a matching 1099 and is unable to do so without the social sec #

________________________ would be penalized if it owes $500 or more in tax after taking into account, estimated payments and credits. a) An individual b) a corporation c) both a corp and individual d) neither a corp nor individual

b) a corporation