Corporate estimated taxes: payments need not be 90 percent of liability to escape penalty

Article Abstract:

Methods for calculating corporate estimated tax payments (which basically involve subtracting expected tax credits from the potential tax burden, and making quarterly payments such that the tax estimated will be paid in at the end of the taxable year) are discussed in terms of the minimum estimated taxes a company should pay without incurring penalties for underpayment of taxes. Calculations of penalties for underpayment of estimated taxes are also explained. Three exceptions to paying estimated taxes are highlighted as methods for deferring or reducing corporate tax liabilities: (1) basing current year estimates on prior year actual taxes, (2) basing current year estimates upon annualized (rather than actual) taxable income levels, and (3) calculating estimated taxes using prior year income levels and current year tax rates.

Methods, Taxation, Tax accounting, Corporate taxes, Corporations

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When underpayments will be subject to higher interest

Article Abstract:

When taxpayers are guilty of substantial underpayments of tax and these underpayments are deemed by the Internal Revenue Service to have been tax-motivated, the taxpayers may be assessed an interest rate on the discrepant amount at 120 percent. In most cases, substantial underpayments are those that result in the taxpayer's having failed to pay $1,000 or more in taxes due, and tax-motivated transactions are generally limited to: valuation overstatements, tax deductions and credits, tax straddles, and using accounting methods erroneously to distort income levels. These underpayment penalties are discussed, and taxpayers are warned that in certain cases underpayment penalties may be accompanied by other penalties, such as those attributable to fraud and negligence.

Interpretation and construction, Tax law, Tax collection

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