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abraararique
Level 1

Startup (C-Corp) Federal Estimated Quarterly Tax Payments

Hi everyone,

 

I'm planning on launching a startup company (Delaware C-Corporation) and thus the main tax return my company needs to file is form 1120 (on April 15 for the previous year).

 

But the actual taxes need to paid quarterly throughout the year (on April 15, June 15, September 15, and December 15). The idea is to estimate your current year's taxes at the beginning (with form 1120-W), and pay 25% of that each quarter.

 

But as a newly launched startup, I have no idea what my profit/loss/taxes will be. What if I estimate $10k in taxes for a year (and accordingly pay $2.5k for the first 2 quarters), but then I have unexpectedly high sales in the last 2 quarters which increases my total tax. Will I incur an underpayment penalty even if I pay enough in the last 2 quarters to make up for the higher profit?

 

How can I avoid the estimated tax penalties and will there be any penalties for my first year?

 

I tried researching about this but couldn't find any comprehensive guide, so any help will be greatly appreciated...

 

Thank you.

1 Best answer

Accepted Solutions
MMTaxMM
Level 10

Startup (C-Corp) Federal Estimated Quarterly Tax Payments

You don't have to worry about penalties your first year.........https://www.irs.gov/instructions/i1120#idm140228285976672

A corporation that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a corporation is subject to the penalty if its tax liability is $500 or more and it did not timely pay at least the smaller of:

  • Its tax liability for the current year, or

  • Its prior year's tax.

 

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3 Replies
MMTaxMM
Level 10

Startup (C-Corp) Federal Estimated Quarterly Tax Payments

You don't have to worry about penalties your first year.........https://www.irs.gov/instructions/i1120#idm140228285976672

A corporation that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a corporation is subject to the penalty if its tax liability is $500 or more and it did not timely pay at least the smaller of:

  • Its tax liability for the current year, or

  • Its prior year's tax.

 

abraararique
Level 1

Startup (C-Corp) Federal Estimated Quarterly Tax Payments

Hi, Martin (@MMTaxMM)

 

Thank you so much for your reply!

 

OK, so if I understand correctly, in their first year of business C-Corps won't be hit with any underpayment penalties; but in any of the later years, their total estimated payments must equal their current or previous years' tax liability, right?

 

So if a corporation pays $10k in taxes in their first year, in their second year as long as their estimated payments add up to $10k, they won't incur any penalties. Do the payments need to be equal (e.g. $2.5k each quarter)?

MMTaxMM
Level 10

Startup (C-Corp) Federal Estimated Quarterly Tax Payments

Yep in the second year you need to pay the $10k in installments and you won't get penalized. That's done equally throughout the year.

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