Is there an IRS penalty for not paying corporation taxes quarterly?
Posted on August 26, 2008 by admin
Steve K asked:
I just formed a new subchapter S corporation in May 2006, with a tax year of 1/1-12/1. If I don’t know how much I will make this year, do I still have to pay taxes quarterly. If I don’t, will the IRS penalize me?
I just formed a new subchapter S corporation in May 2006, with a tax year of 1/1-12/1. If I don’t know how much I will make this year, do I still have to pay taxes quarterly. If I don’t, will the IRS penalize me?
A penalty is possible if more than $500 taxes are owed. If the taxable income occurs unevenly throughout the year, you can annualize the payments and avoid the penalty. The penalty is figured using Form 2220.
Complete details are in the Instructions to IRS Form 2220 Underpayment of Estimated Tax by Corporations.
You MAY skid by, however since it’s the second year your company has been around I doubt it. Bring in your accountant to look at the books.
From this government website…
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. A corporation that has a reasonable cause to file late must attach a statement to its tax return explaining the reasonable cause.
Late payment of tax. A corporation that does not pay the tax when due may be penalized ½ 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.
S Corps are pass through entities. The taxes are paid by the shareholders on their personal returns. Because of that, you have to take into account all income reported on your personal return and calculate your quarterly payments from that.
s-corp doesn’t normally pay federal taxes. The activity for the s-corp – profits, losses, gains, deductions, etc. pass through to the shareholders via a K-1. The corporation will not need to pay quarterly taxes, but you might if the s-corp income is high enough. You will report the K-1 info on your personal income tax return, and should have received a K-1 for 2006 already.
Steve, just to let you know in the previous question you had asked regarding s-corps. You had picked my answer as the best answer, and had commented that all you now needed was a good tax man. Just to let you know, I am a CPA/Tax Preparer and work for a small CPA/Tax prep firm in Massachusetts. If you are serious about needing a good tax man please send me a yahoo message and maybe we can work something out. My boss is always open to new business, and we have tax software that can prepare a return for any state.
YES.
However, if you have an S Corp the corportation will not normally owe any tax. It will flow through to the share holders personal returns.
And, No the penalties aren’t based upon $500 for personal returns anymore…but they usta’ be. It was $1000 the last I heard and who knows what it will be next year.
Now, with that said…there are times that an S-Corp will have to pay taxes…and in this case yes you would need to make quarterly payments. Though more than likely if you have one of these S-corporations you would not be asking questions here.