Is an S-Corporation required to pay quarterly estimated tax?

Rarely does an S corporation make estimated tax payments. On rare occasions the following taxes may have estimated consequences if the total of these taxes is more than an amount specified by law:

1. the tax on certain capital gains,
2. the tax on built-in gains,
3. the excess net passive income tax, and
4. 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 Chapter 2 of 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 during the tax year or previous tax year. Refer to Chapter 2 in Publication 505 , Tax Withholding and Estimated Taxes 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?

Who Must Pay Estimated Tax

If you owed additional tax for 2006, you may have to pay estimated tax for 2007.

General Rule

You Must Pay estimated tax for 2007 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2007, after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of:

-------a. 90% of the tax to be shown on your 2007 tax return, or

-------b. 100% of the tax shown on your 2006 tax return. *Your 2006 tax return must cover all 12 months.

--------* Certain taxpayers with higher adjusted gross income must substitute 110% for 100%. Refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax, for the income amounts that the higher percentage applies to.

References:

• Publication 505, Tax Withholding and Estimated Tax
• Form 1040-ES (PDF), Estimated Tax for Individuals

Do self-employment taxes need to be paid quarterly or yearly?

If you are required to make estimated tax payments, self-employment tax is paid by making quarterly estimated tax payments which include both income tax and social security tax.

References:

• Publication 334, Tax Guide for Small Business
• Publication 505, Tax Withholding and Estimated 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.

References:

• Publication 505, Tax Withholding and Estimated Tax, Chapter 2.

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.

References:

• Publication 505, Tax Withholding and Estimated Tax

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?

You would be liable for estimated tax if the following applies:

General Rule

You must pay estimated tax for 2007 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2007, after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of:

......... a. 90 % of the tax to be shown on your 2007 tax return, or

......... b. 100% of the tax shown on your 2006 tax return. * Your 2006 tax return must cover all 12 months.

*Certain taxpayers with higher adjusted gross income must substitute 110% for 100%. Refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax, for the income amounts that the higher percentage applies to.

You may be able to annualize your income. Please see Publication 505, Tax Withholding and Estimated Tax, Chapter 2, for more information. 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.

References:

• Form 1040-ES (PDF), Estimated Tax for Individuals
• Tax Topic 306, Penalty for Underpayment of Estimated Tax

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 Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.

References:

• Form 1040-ES (PDF), Estimated Tax for Individuals
• Publication 505, Tax Withholding and Estimated Tax