In this video, I discuss the estimated tax payment of C corporation as a form of tax strategy as covered on the tax compliance and planning TCP of the CPA exam.
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ffective corporate tax planning involves strategies aimed at reducing the overall tax burden a corporation faces and at the same time, ensuring compliance to avoid penalties associated with underpayment of taxes. Corporations, with a few exceptions for those with very small tax liabilities (under $500), are required to make payments towards their estimated tax liability on a quarterly basis. These payments are due on the 15th day of the fourth, sixth, ninth, and twelfth months of the corporation's fiscal year.

For these quarterly payments, each installment must represent 25% of the corporation's total expected tax payment for the year. The calculation of this "annual required payment" can be based on one of three criteria, chosen to minimize the payment amount:

Current Year's Tax Liability: The corporation can opt to pay 100% of the estimated tax liability for the current year. This method involves estimating the total tax for the current year and making quarterly payments that sum up to this estimate.

Prior Year's Tax Liability: This option allows the corporation to base its quarterly payments on 100% of the tax liability reported on the previous year's tax return. However, there are restrictions:

This method can only be used for the first quarter's payment by "large corporations," defined as those with over $1 million in taxable income in any of the three preceding years.
It cannot be used at all if the corporation had no tax liability in the previous year.
Annualized Income Method: This involves calculating 100% of the estimated tax liability for the current year by annualizing the taxable income for each quarter. This method is more complex but can be beneficial for corporations with fluctuating income throughout the year.

By choosing the most favorable method, corporations can manage their cash flow more effectively while ensuring compliance with tax regulations to avoid underpayment penalties.


Corporations typically base their first quarter's estimated tax payment on the tax liability of the previous year, except in cases where they had no tax liability during that year. For corporations with consistent income throughout the year, it's common to calculate their estimated tax payments for the year based on an estimate of the current year's tax liability, dividing this total amount evenly across the four quarters.

However, in situations where a corporation's income varies significantly from one quarter to another, the annualized income method is employed to determine the estimated tax payments for the subsequent quarters. This method involves projecting the tax liability as if the income earned in a given quarter would continue at the same rate for the entire year. This projection is then used to calculate the estimated tax payments for each quarter.

It's important to note that because estimated tax payments are due 15 days after the end of each quarter, the calculation for the annualized income method inherently has a one-quarter delay. This means that while the first quarter's payment might not be influenced by this method, the payments for the following quarters are adjusted based on the actual income of preceding quarters, using the annualized method to account for fluctuations in income. This allows corporations to make more accurate tax payments in line with their actual earnings, helping them manage their financial resources more effectively and avoid potential underpayment penalties.

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