Kapitol Services Corp estimates that its 2017 taxable income

Kapitol Services Corp 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 situations, compute Kapitol’s 2017 minimu quarterly estimated tax payments that will avoid an underpayment penalty.

a. For 2016, taxable income was ($200,000). Kapitol carried back all of this loss to prior years and exhausted the entire NOL in creating a $0 2016 liability.

b. For 2016, taxable income was $450,000, and tax liability was $153,000.

c. 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.

Solution

1) 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.