I think you missed Tim’s point. You don’t have to guess what your income will be for the full year. Remember, you pay estimated taxes at the end of the quarter.
Therefore, if you pay estimated taxes on your profits for that quarter then you should be fine for the year since you will do this same thing each and every quarter.
Paying estimated tax for newly created C corp??? - Posted by KatieFL
Posted by KatieFL on September 28, 1999 at 20:14:59:
I have just finished reading IRS Pub.542 about corporations. People here always talk about tax savings of incorporating. But I don’t understand one point. It says that a corporation has to pay 25% of estimated tax for the current year every four months. If you underpay, you have penalties.
I am just now getting into investing (flips and l/o) and going to form a corporation. Please tell me, HOW IN THE WORLD AM I GOING TO KNOW WHAT I WILL MAKE NEXT YEAR!!! It could be anywhere from $15,000 to $100,000 (being optimistic here). Now that sounds impossible for me to figure out my taxes for the year.
If you have created a corporation in the last few years, please tell me how you got around this issue. Should I start with an S Corp. to avoid the issue? Please help. I need to get the paperwork done soon.
Re: Paying estimated tax for newly created C corp??? - Posted by Millie I.
Posted by Millie I. on September 28, 1999 at 23:54:55:
Katie,
If you are just starting out now, you needn’t be concerned for the first year or two about paying quarterly taxes (unless you are a super-newbie that will net $100K the first year). Just wait till the end of the year, add all income, minus all expenses, deductibles, and depreciations ( documentations required ), and pay taxes on the Net. If you don’t intend to cheat, you have nothing to worry about as long as you pay. IRS is concerned about the big fish that got away, not the entry level guy that’s trying to make it.
IRS is not going to jump on you for the first 4 or 5 deals done in the first couple years, as long as you pay the correct amount of taxes by April. When you have established your business, and have a better idea of what you make a year reliably, then you can pay quarterly or monthly.
Of course, if you wish to use a corporation, and pay like an established coporation, it is your option. Maybe if you use an LLC and Land Trust, it would be simpler when it comes to paying taxes.
Re: Paying estimated tax for newly created C corp??? - Posted by Tim Jensen
Posted by Tim Jensen on September 28, 1999 at 21:26:23:
Katie,
This is not a big deal.
The way I would handle it is this way.
I will assume that you formed this corporation very recently. The next estimated tax date is January 15, 2000. Take any net profits you make from now until January 15, 2000 and send the IRS 25%.
I know that there is another way around this, but if you want to be safe do it that way.
I am no tax expert, so I would find one and let them advise you.
Re: Paying estimated tax for newly created C corp??? - Posted by KatieFL
Posted by KatieFL on September 28, 1999 at 22:05:59:
Thanks for the advice. I am not as much concerned with this year though, but the next year, which will be a full year of operation. It would be hard to guess the income for the year.