LO6 Kold Services Corporation estimates that its 2017 taxabl

LO.6 Kold Services Corporation estimates that its 2017 taxable income will be $500,000. Thus, it is subject to a flat 34% income tax rate and incurs a $170,000 liability. For each of the following independent cases, compute Kold\'s 2017 minimum quarterly estimated tax payments that will avoid an underpayment penalty a. For 2016, taxable income was ($200,000). Kold carried back all of this loss to prior years and exhausted the entire net operating loss in creating a zero 2016 liability. For 2016, taxable income was $450,000, and tax liability was $153,000. For 2015, taxable income was $2 million, and tax liability was $680,000. For 2016, taxable income was $400,000, and tax liability was $136,000 b. c.

Solution

SOLUTION:

1st Quarter Payment (=170,000/4)

42,500

2nd Quarter Payment (=170,000/4)

42,500

3rd Quarter Payment (=170,000/4)

42,500

4th Quarter Payment (=170,000/4)

42,500

Total payments

170,000

Not allowed to use the prior-year exception; no positive tax on last year’s return, thus each payment is $85,000.

2)

1st Quarter Payment (=153,000/4)

38,250

2nd Quarter Payment (=153,000/4)

38,250

3rd Quarter Payment (=153,000/4)

38,250

4th Quarter Payment (=153,000/4)

38,250

Total payments

153,000

Using the prior-year exception, each payment computed as 25% * $153,000 = $59,500. The remaining balance i.e. $17,000 ($170,000 - $153,000) to be paid in installments will be due without penalty with the Form 1120.

3)

1st Quarter Payment (=153,000*25%)

38,250

2nd Quarter Payment (=42,500*2 - 38,250)

46,750

3rd Quarter Payment (=153,000/4)

42,500

4th Quarter Payment (=153,000/4)

42,500

Total payments

170,000

The basic payment is 25%* $170,000 = $42,500. It may use the prior-year exception only on its first quarter payment. Any underpayments from the first quarter will be due with the second installment.

1st Quarter Payment (=170,000/4)	42,500
2nd Quarter Payment (=170,000/4)	42,500
3rd Quarter Payment (=170,000/4)	42,500
4th Quarter Payment (=170,000/4)	42,500
Total payments	170,000