All businesses are required to pay estimated taxes quarterly.
Due dates for estimated tax payments
| Payment | When Income Earned | Due Date |
| 1st Payment | January 1 to March 31 | April 15 |
| 2nd Payment | April 1 to May 31 | June 15 |
| 3rd Payment | June 1 to August 31 | September 15 |
| 4th Payment | September 1 to December 31 | January 15 |
You are required to pay the lesser of what you paid last year or 90% of current estimate. Pay less and you may be subject to underpayment penalties.
Due dates for filing your return or extension
- Partnerships & S-Corp: March 15
- C Corporations: April 15 (if your fiscal year is the same as the calendar year)
If you file an extension, it gives you six (6) months to file your actual return. This removes the failure-to-file penalty, but it does not remove the failure-to-pay penalty. Additionally, the IRS charges interest on all amounts due.
Below is an illustrative example of the penalties and charges
C-filer does not file an extension, Files tax return by 10/15. Calculates total tax due $100k
- Failure-to-file penalty $25k ($100k x 5% x 5 months)
- Failure-to-pay penalty $500 ($100k x .5%) on charged for the 6th month
- Interest varies and dependent on amount due. Currently, the IRS interest rate ranges from 3-7%
Note: The failure-to-file is a much steeper penalty but maxes out at 5 months, however, the failure-to-pay penalties continues until paid for a max of 25%.
The bottom line is, DO NOT pay unnecessary fees and penalties. If you’re net income is getting up there, you should hire a good CPA/CFO to develop strategies to minimize the possibility of having to pay these penalties.
References