Estimated Tax: Businesses
This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Is an S-Corporation required to pay quarterly estimated tax?
Generally, the corporation must make estimated tax payments for the following
taxes if the total of these taxes is more than an amount specified by law:
- the tax on certain capital gains,
- the tax on built-in gains,
- the excess net passive income tax, and
- the investment credit recapture tax.
For more information regarding estimated tax, refer to Form 1120S Instructions, U.S. Income Tax Return for an S Corporation, under
topic Estimated Tax Payments and Publication 542, Corporations,
under topic Paying and Filing Income Taxes.
How do partnerships file and pay quarterly estimated tax payments
?
Partnerships file Form 1065 (PDF), U.S.
Partnership Return of Income, to report income and expenses. The partnership
passes the information to the individual partners on Schedule K-1, Form 1065.
The partners report the information and pay any taxes due on Form 1040.
Because partners are not employees of the partnership, no withholding is taken
out of their distributions to pay the income and self-employment taxes on
their Forms 1040. The partners may need to pay Estimated Tax Payments using
Form 1040-ES.
Refer to Form 1065 Instructions, U.S. Partnership
Return of Income and Publication 505, Tax Withholding and Estimated
Tax for additional information.
Most of my income is from farming. Are there any special provisions
related to estimated tax payments for farmers?
If you have income from farming, you may be able to avoid making estimated
tax payments by filing your return and paying the entire tax due on or before
March 1 of the year your return is due. If March 1 falls on a weekend or legal
holiday, you have until the next business day to file and pay tax. This estimated
tax rule generally applies if at least 2/3 of your total gross income is from
farming this year or previous year. Refer to Publication 225, Farmer's
Tax Guide, and Tax Topic 416, Farming and Fishing Income, for
additional information.
How do I know if I have to file quarterly individual estimated tax
payments?
Estimated tax payments can be used to pay Federal income tax, self-employment
tax, and household employment tax. To estimate if you need to pay tax on income
not subject to withholding or on other income from which not enough tax is
withheld, you need to calculate if the total tax you'll owe on your annual
income tax return will be covered by the amount of tax you have already had
either:
- withheld from wages and other payments, or
- paid in earlier estimated payments for the year, or
- credited to your account from adjustments or overpayments to previously
filed returns.
Generally, you should make estimated tax payments if you will owe tax more,
than an amount specific by law, after withholding and credits, and the total
amount of tax withheld and your credits will be less than the smaller of:
- 90% of the tax to be shown on your current tax return, or
- 100% of the tax shown on your prior year's tax return, if your prior year's
tax return covered all 12 months of the year. However, if your prior year's
adjusted gross income exceeded a certain amount based on your filing status,
then you must pay 110% instead of 100% of last year's tax. (Note: the percentages
change depending on the tax year. Refer to Publication 505, Tax Withholding
and Estimated Tax.)
Estimated tax requirements are different for farmers and fishermen. Publication 505, Chapter 2, 3, & 4, Tax Withholding and Estimated Tax,
provides more information about these special estimated tax rules and about
estimated tax in general. Get Form 1040-ES (PDF), Estimated
Tax for Individuals, to help you figure your estimated tax liability.
Do self-employment taxes need to be paid quarterly or yearly?
Self-employment tax is paid by making quarterly estimated tax payments
which include both income tax and social security tax.
When are the quarterly estimated tax returns due?
Your first estimated tax payment is usually due the 15th of April. You
may pay the entire year's estimated tax at that time, or you may pay your
estimated tax in four payments. The four payments are due April 15th, June
15th, September 15, and January 15th of the following year.
If the due date for making an estimated tax payment falls on a Saturday,
Sunday, or legal holiday, the payment will be on time if you make it on the
next day that is not a Saturday, Sunday, or legal holiday.
How do I report the estimated payments I have made when I file my
taxes at the end of the year?
Take credit for all your estimated tax payments in the "Payments" section
of Form 1040 (PDF), U.S. Individual Income
Tax Return, or Form 1040A (PDF) , U.S.
Individual Income Tax Return.
If I anticipate a sizable capital gain on the sale of an investment
during the year, do I need to make a quarterly estimated tax payment during
the tax year?
If you first receive income subject to estimated tax during a period other
than the first quarter, you must make your first payment by the due date for
the period the income is received. You can pay your entire estimated tax by
the due date for the period the income is received, or you can pay it in installments
by the due date for that period and the due dates for the remaining periods.
If you are making estimated tax payments you can increase your quarterly
estimated tax payments or increase your Federal income tax withholding to
cover the tax liability. If you have the proper amount withheld you may not
be required to make estimated tax payments nor have to file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and
Trusts, with your tax return (as you would if you just increased the
remaining estimated tax payments). If you wait and make increased estimated
tax payments in the later quarters, you would have to file Form 2210 with
your tax return because we do not know when you received the income. Since
you really did not receive the income evenly throughout the year, you have
to tell us when the income was received by filing Form 2210.
What is meant by "no tax liability" in the exceptions to the estimated
tax penalty?
You do not have to pay estimated tax if you meet all three of the following
conditions.
1. You had no tax liability for the prior year.
2. You were a U.S. citizen or resident for the whole year.
3. Your prior tax year covered a 12-month period.
You had no tax liability if your total tax was zero or you did not have
to file an income tax return.
Total tax . Your total tax on Form 1040 (PDF) is the amount listed on the line labeled "total tax" reduced by
the amount of earned income credit, additional child tax credit, and credits
from Form 4136 (PDF) and Form 8885 (PDF).
On Form 1040A (PDF), it is labeled "total tax"
reduced by the amount of earned income credit and additional child tax credit.
On Form 1040EZ (PDF), it is the amount labeled
"tax" reduced by the amount of earned income credit.
For additional information on this topic refer to Form 1040-ES (PDF), Estimated Tax for Individuals , and Publication 505, Tax
Withholding and Estimated Tax .
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