The federal income tax is a pay-as-you-go tax. A corporation
generally must make estimated tax payments as it earns or receives
income during its tax year. After the end of the year, the corporation
must file an income tax return. This section will help you determine
when and how to pay and file corporate income taxes.
Generally, a corporation must make installment payments if it
expects its estimated tax for the year to be $500 or more. If the
corporation does not pay the installments when they are due, it could
be subject to an underpayment penalty. This section will explain how
to avoid this penalty.
When to pay estimated tax.
Installment payments are due by the 15th day of the 4th, 6th, 9th,
and 12th months of the corporation's tax year.
Your corporation's tax year ends December 31. Installment payments
are due on April 15, June 15, September 15, and December 15.
Your corporation's tax year ends June 30. Installment payments are
due on October 15, December 15, March 15, and June 15.
If any due date falls on a Saturday, Sunday, or legal holiday, the
installment is due on the next business day.
How to figure each required installment.
Use Form 1120-W
to figure each required
installment of estimated tax. You will generally use one of the
following two methods to figure each required installment. You should
use the method that yields the smallest installment payments.
In these discussions, "return" generally refers to the
corporation's original return. However, an amended return is
considered the original return if it is filed by the due date
(including extensions) of the original return.
Each required installment is 25% of the income tax the corporation
will show on its return for the current year.
Each required installment is 25% of the income tax shown on the
corporation's return for the previous year.
To use Method 2:
- The corporation must have filed a return for the previous
- The return must have been for a full 12 months, and
- The return must have shown a positive tax liability (not
Also, if the corporation is a large corporation, it can use
Method 2 to figure the first installment only.
A large corporation is one with at least $1 million of modified
taxable income in any of the last 3 years. Modified taxable income is
taxable income figured without net operating loss or capital loss
carrybacks or carryovers.
If a corporation's income is expected to vary during the year
because, for example, its business is seasonal, it may be able to
lower the amount of one or more required installments by using one or
both of the following methods.
- The annualized income installment method.
- The adjusted seasonal installment method.
Use Schedule A of Form 1120-W to see if using one or both
of these methods will lower the amount of any required installments.
Refiguring required installments.
If after the corporation figures and deposits its estimated tax it
finds that its tax liability for the year will be more or less than
originally estimated, it may have to refigure its required
installments to see if an underpayment penalty may apply. In this
situation, an immediate catchup payment should be made to reduce any
penalty resulting from the underpayment of any earlier installments.
If the corporation does not pay a required installment of estimated
tax by its due date, it may be subject to a penalty. The penalty is
figured separately for each installment due date. The corporation may
owe a penalty for an earlier due date, even if it paid enough tax
later to make up the underpayment. This is true even if the
corporation is due a refund when its return is filed.
Use Form 2220 to determine if a corporation is subject to the
penalty for underpayment of estimated tax and, if so, the amount of
If the corporation is charged a penalty, the amount of the penalty
depends on the following three factors.
- The amount of the underpayment.
- The period during which the underpayment was due and
- The interest rate for underpayments published quarterly by
the IRS in the Internal Revenue Bulletin.
A corporation generally does not have to file Form 2220 with its
income tax return because the IRS will figure any penalty and bill the
corporation. However, even if the corporation does not owe a penalty,
complete and attach the form to the corporation's tax return if any of
the following apply.
- The annualized income installment method was used to figure
any required installment.
- The adjusted seasonal installment method was used to figure
any required installment.
- The corporation is a large corporation and Method 2 was used
to figure its first required installment.
How to pay estimated tax.
Unless you volunteer or are required to make electronic deposits,
you should mail or deliver your payment with a completed Form
to an authorized financial institution.
For more information, see the instructions for Form 1120-W.
Electronic Federal Tax Payment System (EFTPS).
You may have to deposit taxes using EFTPS. You must use EFTPS to
make deposits of all depository tax liabilities (including social
security, Medicare, withheld income, excise, and corporate income
taxes) you incur in 2002 if you deposited more than $200,000 in
federal depository taxes in 2000 or you had to make electronic
deposits in 2001. If you first meet the $200,000 threshold in 2001,
you must begin depositing using EFTPS in 2003. Once you meet the
$200,000 threshold, you must continue to make deposits using EFTPS in
If you must use EFTPS but fail to do so, you may be subject to a
If you are not required to use EFTPS because you did not meet the
$200,000 threshold during 1998, or during any subsequent year, then
you may voluntarily make your deposits using EFTPS. However, if you
are using EFTPS voluntarily, you will not be subject to the 10%
penalty if you make a deposit using a paper coupon.
For information about EFTPS, access the IRS web site at
www.irs.gov or see Publication 966, Now a Full Range
of Electronic Choices to Pay ALL Your Federal Taxes.
To enroll in EFTPS, call:
Quick refund of overpayments.
A corporation that has overpaid its estimated tax for the tax year
may be able to apply for a quick refund. Use Form 4466 to apply for a
quick refund of an overpayment of estimated tax. A corporation can
apply for a quick refund if the overpayment is:
- At least 10% of its expected tax liability,
- At least $500.
Use Form 4466 to figure the corporation's expected tax
liability and the overpayment of estimated tax.
File Form 4466 before the 16th day of the 3rd month after the end
of the tax year, but before the corporation files its
income tax return. An extension of time to file the corporation's
income tax return will not extend the time for filing Form 4466. The
IRS will act on the form within 45 days from the date you file it.
Income Tax Return
This section will help you determine when and how to report a
corporation's income tax.
Who must file.
Unless exempt under section 501 of the Internal Revenue Code, all
domestic corporations in existence for any part of a taxable year
(including corporations in bankruptcy) must file an income tax return
whether or not they have taxable income.
Which form to file.
A corporation must generally file Form 1120 to report
its income, gains, losses, deductions, credits, and to figure its
income tax liability. However, a corporation may file Form
1120-A if its gross receipts, total income, and total
assets are each under $500,000 and it meets certain other
requirements. Also, certain organizations must file special returns.
For more information, see the instructions for Forms 1120 and
When to file.
Generally, a corporation must file its income tax return by the
15th day of the 3rd month after the end of its tax year. A new
corporation filing a short-period return must generally file by the
15th day of the 3rd month after the short period ends. A corporation
that has dissolved must generally file by the 15th day of the 3rd
month after the date it dissolved.
A corporation's tax year ends December 31. It must file its income
tax return by March 15th.
A corporation's tax year ends June 30. It must file its income tax
return by September 15th.
If the due date falls on a Saturday, Sunday, or legal holiday, the
due date is extended to the next business day.
Extension of time to file.
File Form 7004
to request a 6-month extension of time
to file a corporation income tax return. The IRS will grant the
extension if you complete the form properly, file it, and pay any tax
due by the original due date for the return.
Form 7004 does not extend the time for paying the tax due on the
return. Interest, and possibly penalties, will be charged on any part
of the final tax due not shown as a balance due on Form 7004. The
interest is figured from the original due date of the return to the
date of payment.
For more information, see the instructions for Form 7004.
Penalty for late filing of return.
A corporation that does not file its tax return by the due date,
including extensions, may be penalized 5% of the unpaid tax for each
month or part of a month the return is late, up to a maximum of 25% of
the unpaid tax. If the corporation is charged a penalty for late
payment of tax (discussed next) for the same period of time, the
penalty for late filing is reduced by the amount of the penalty for
late payment. The minimum penalty for a return that is over 60 days
late is the smaller of the tax due or $100. The penalty will not be
imposed if the corporation can show the failure to file on time was
due to a reasonable cause. Corporations that have a reasonable cause
to file late must attach a statement explaining the reasonable cause.
Penalty for late payment of tax.
A corporation that does not pay the tax when due may be penalized 1/2 of 1% of the unpaid tax for each month or part of a month
the tax is not paid, up to a maximum of 25% of the unpaid tax. The
penalty will not be imposed if the corporation can show that the
failure to pay on time was due to a reasonable cause.
Trust fund recovery penalty.
If income, social security, and Medicare taxes that a corporation
must withhold from employee wages are not withheld or are not
deposited or paid to the United States Treasury, the trust fund
recovery penalty may apply. The penalty is the full amount of the
unpaid trust fund tax. This penalty may apply to you if these unpaid
taxes cannot be immediately collected from the business.
The trust fund recovery penalty may be imposed on all persons who
are determined by the IRS to be responsible for collecting, accounting
for, and paying these taxes, and who acted willfully in not doing so.
A responsible person can be an officer or employee of a
corporation, an accountant, or a volunteer director/trustee. A
responsible person also may include one who signs checks for the
corporation or otherwise has authority to cause the spending of
Willfully means voluntarily, consciously, and intentionally. A
responsible person acts willfully if the person knows the required
actions are not taking place.
For more information on withholding and paying these taxes, see
Publication 15, Circular E, Employer's Tax Guide.
Use Form 1120X
to correct any error in a Form 1120 or
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