9.1 Estimated Tax: Businesses
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.
References:
- Publication 542, Corporations
- Form 1120S Instructions
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.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 1065 (PDF), U.S. Partnership Return of Income
- Form 1065 Instructions, U.S. Partnership Return of Income
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 Chapter 12 in Publication 225, Farmer's Tax Guide, and Tax Topic 416, Farming and Fishing Income, for additional information.
References:
- Publication 225, Farmer's Tax Guide
- Tax Topic 416, Farming and Fishing Income
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 Chapter 2 of 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.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 1040-ES (PDF), Estimated Tax for Individuals
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
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.
Take credit for all your estimated tax payments in the "Payments" section of Form 1040, U.S. Individual Income Tax Return, or Form 1040A , U.S. Individual Income Tax Return.
References:
- Publication 505, Tax Withholding and Estimated Tax
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.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 1040-ES (PDF), Estimated Tax for Individuals
- Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts
- Tax Topic 306, Penalty for Underpayment of Estimated Tax
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 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, 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