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.
How to figure each required installment. Use Form 1120-W, Estimated Tax for Corporations, as a worksheet 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.
Underpayment penalty. 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.
How to pay estimated tax. A corporation is generally required to use EFTPS to pay its taxes.
Alternative Minimum Tax (AMT)
The tax laws give special treatment to some types of income and allow special deductions and credits for some types of expenses. These laws enable some corporations with substantial economic income to significantly reduce their regular tax. The corporate alternative minimum tax (AMT) targets these corporations and attempts to ensure that they pay at least a minimum amount of tax on their economic income. A corporation (other than a small corporation exempt from the AMT, as discussed below) owes AMT if its tentative minimum tax is more than its regular tax.
Small corporation exemption. A corporation is treated as a small corporation exempt from the AMT for its current tax year if that year is the corporation’s first tax year in existence (regardless of its gross receipts for the year) or:
- It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997, and
- Its average annual gross receipts for the 3-tax-year period (or portion thereof during which the corporation was in existence) ending before its current tax year did not exceed $7.5 million ($5 million for the corporation’s first 3-tax-year period).