How to Calculate Federal Income Tax Withholdings and Costs for Businesses
Corporation income taxes must be estimated and paid quarterly to avoid penalties on unpaid federal taxes when the corporate tax return is filed at the end of the fiscal year. This requires calculating the company's tax-basis income and tax-deductible expenses at the end of each three-month period and making an electronic payment for the federal tax estimate.
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Instructions
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Calculate the corporation gross income subject to taxes after the first three months of the fiscal year. Calculate total expenses deductible on the corporation tax return, then subtract them from the gross income to arrive at the corporation's taxable income for the first quarter. Consult the C corporation federal tax table to compute the estimated federal tax due for the first quarter.
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Sign the corporation up for electronic federal tax payments on the Electronic Federal Tax Payment System website. Estimated federal C corporation tax payments can only be made through this online service or by telephone using the toll-free number provided on the website.
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Follow the directions on the website to register the corporation. You will need the corporation's federal employer identification number, the corporation's bank account routing number and the bank account number to complete the registration process. Make the first quarter estimated payment once the registration process is completed. Print the confirmation after making the payment to document the transaction.
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Use year-to-date taxable income to calculate the estimated federal tax due for each subsequent quarter and deduct payments made for prior quarters to determine the estimated tax due for the current quarter. For example, if, at the end of the second quarter, the total year-to-date tax due is $10,000 according to the tax table, and you have paid a $5,000 first-quarter estimate, subtract $5,000 from the total tax due and make a second-quarter electronic estimate payment of $5,000.
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Tips & Warnings
Enter the estimate payment in the company's check register after each quarter's payment is completed.
Schedule C businesses, partnerships, S corporations and limited liability companies are all taxed on individual personal tax returns at the taxpayer's individual federal rates.
