Quarterly Taxes: Paying as a Corporation

This is our second post in a two-part series about quarterly taxes. You're only expected to pay quarterly taxes if you're a freelancer or a corporation. In our first part we explained paying quarterly taxes when you're self-employed, and we'll now explain the corporation side of things.

Unlike in employee income taxes where they know exactly how much they owe, a  company will pay taxes based on a system of estimated taxes. This means the company calculates how much taxes they think they’ll owe for that quarter and they make a payment.

Quarterly Taxes for Corporations

This is not equivalent to filing taxes. Taxes will be filed at the end of the fiscal year when you have full information about how much you made. You then will either receive a refund or a bill, depending on whether you underpaid or overpaid in these estimated quarterly payments.

For corporations, the rules are more or less the same as for contractors, but the difference is that if the corporation expects that its tax will be more than $500 in any tax year, it will need to pay quarterly taxes.

The main difference is when those quarters actually end. If your corporation works off the calendar year, the rules are the same as for freelancers except for your last quarter’s payment. Rather than paying on January 15th of the following year, you have to pay your last estimated payment on December 15th.

However, if you work on your own fiscal year, the rules are as follows:

• The 15th day of the 4th month of your fiscal year

• The 15th day of the 6th month of your fiscal year

• The 15th day of the 9th month of your fiscal year

• The 15th day of the 12th month of your fiscal year

How to Pay

It is imperative that if you have to pay quarterly taxes that you actually do it. The IRS can and will issue you penalties if you do not make your payments on time. An example of this is the following:

• If you didn’t pay enough estimated tax for the first quarter, but then made up the difference in your second quarter’s tax, you’d still be given a penalty for not paying enough in the first quarter.

There are a few ways to pay your taxes:

• Paying electronically through the Electronic Federal Tax Payment System (EFTPS). Corporations always have to pay this way.

• Paying by check or money order using the estimated tax payment voucher

• Paying with electronic funds withdrawal (EFW)

• Paying with your credit card (there is a convenience fee for doing this)

In the end …

You’re running a business. Unfortunately, taxes are a part of that. Spend an hour talking with your accountant to get a good grasp of what you’re going to owe this year and then get those payments in. You’re already trying to keep your burn rate down. The last thing you want is to owe the government more money which can completely mess up long-term projections.