How to Calculate and Pay Estimated Corporate Taxes Using Form 1120-W

  • Accracy
  • 26th Nov, 2023

In the U.S., income taxes are a "pay as you go" system. This means individuals and businesses are supposed to make estimated tax payments to the Internal Revenue Service (IRS) throughout the year as they earn income rather than paying a lump sum when they file a tax return.

How to Calculate and Pay Estimated Corporate Taxes Using Form 1120-W
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Corporate taxpayers follow the same rules, although the forms and due dates differ. This article explains Form 1120-W, Estimated Tax for Corporations, including who needs to use it, how to fill it out, and when estimated tax payments are due.

What is Form 1120-W?

C corporations use Form 1120-W to estimate their tax liability and calculate their quarterly estimated tax payments.

C corporations that expect to owe more than $500 in taxes for the year must make quarterly estimated tax payments. Limited liability companies (LLCs) that have elected to be taxed like C corporations must also make quarterly estimated payments.

If you don't make estimated payments when required, the IRS will assess an underpayment of estimated tax penalty and charge interest on that penalty.

S corporations don't use Form 1120-W. Since an S corporation is a pass-through entity, its shareholders use Form 1040-ES to calculate estimated tax payments. Since this article focused on Form 1120-W, we're specifically referring to C corporations (or LLCs that have elected to be taxed like C corporations) when we mention corporations throughout the rest of this article.

Further reading: S Corporation Tax Filing: Benefits, Deadlines, and How-to

 

How to fill out Form 1120-W

For most corporations, completing Form 1120-W is relatively simple—at least as far as tax forms go—because you only need to worry about the first page. Here are line-by-line instructions.

  • Line 1. Enter your expected taxable income for the tax year. Your taxable income is simply your revenues minus allowable deductions.
  • Line 2. Multiply your estimated taxable income from line 1 by 21% and enter the result here.
  • Line 3. Enter any tax credits you expect to claim. You can find more information on business tax credits in the IRS Instructions for Form 1120 or in our Big List of U.S. Small Business Tax Credits.
  • Line 4. Subtract line 3 from line 2 and enter the result here.
  • Line 5. If you have to pay any other taxes with your corporate income tax return, you enter these taxes here. These taxes—such as the alternative tax on qualifying shipping activities and tax and interest on a nonqualified withdrawal from a capital construction fund—are rare for small businesses, but you can learn more about them in the IRS Instructions for Form 1120.
  • Line 6. Add lines 4 and 5 and enter the total here.
  • Line 7. If you're eligible to claim the credit for federal tax paid on fuels, enter your estimated credit here. This credit is generally only available to businesses that buy gasoline for vehicles that aren't registered for highway use, farming businesses, and boats used for commercial fishing. You can learn more about it in the Instructions for Form 4136.
  • Line 8. Subtract line 7 from line 6 and enter the result here. If the amount is less than $500, you don't need to make estimated tax payments. If it's more than $500, continue to the following line.
  • Line 9a. If you filed a return for the previous year, enter your tax minus credits from your prior year's return. However, if last year's return covered less than 12 months or your tax was zero, skip this line and enter the amount from line 8 on line 9b.
  • Line 9b. Enter the smaller of line 8 or line 9a. If you skipped line 9a, just enter the amount from line 8 here.
  • Line 10. Enter the due dates of your four tax installments in boxes a through d. The due dates for corporations with a calendar year-end are generally April 15, June 15, September 15, and December 15. If you operate on a fiscal year-end, we'll explain your payment due dates below, under "When and where to send your estimated tax payments."
  • Line 11. Divide the amount on Line 9b by four and enter the result in columns a through d. This is your required installment schedule.

Most corporations can stop here. However, if you use either the annualized income or the adjusted seasonal installment method, you'll need to complete Schedule A on pages 2-3 of Form 1120-W to calculate your estimated tax payments. These methods only apply if your business is seasonal and you earn most of your revenue during a specific time of year.

Calculating estimated payments under these methods is much more complex. You can follow the Instructions for Form 1120-W, but you might want help from a tax advisor to ensure you get it right.

Whichever method you use, you don't need to file Form 1120-W with the IRS. It's just a tax worksheet to help you calculate your estimated payments.

When and where to send your estimated tax payments

For calendar year corporations, estimated taxes are due:

  • April 15
  • June 15
  • September 15
  • December 15

Fiscal year corporations have a modified schedule. Their installments are due on the 15th day of the fourth, sixth, ninth, and 12th month of their fiscal year. For example, a corporation with a June 30 year-end would have installment payments due on October 15, December 15, March 15, and June 15.

If any of those dates fall on a weekend or legal holiday, the deadline shifts to the next business day.

Unlike individuals, corporations can't just mail their tax payments with a voucher. The IRS requires corporations to use the Electronic Federal Tax Payment System (EFTPS). EFTPS lets you send tax payments directly from your bank account to the IRS via electronic funds transfer.

To use EFTPS, you have to enroll in the program. You can enroll online, but you must wait seven to 10 days to receive a PIN in the mail to start using the system, so it's a good idea to start the process well before your federal tax deposit due date.

How Accracy can help

Figuring out how much tax you should pay is relatively straightforward if you know your business's projected revenues and expenses. For most business owners, it isn't setting aside money for taxes that's the issue—it's the number crunching that needs to happen beforehand.

If you've fallen behind on your bookkeeping, Accracy can help. We provide small business owners with a dedicated team of bookkeepers to complete their monthly books and keep the financial records updated for tax time. Our tax services also include unlimited calls with our tax advisors, so you can get answers to any questions you have about tax deductions, tax credits, and more.

Getting your financials up-to-date and accurate is the first step to estimating your taxable income and calculating your estimated payments.

The bottom line

Dealing with tax deadlines and IRS forms can be a headache for business owners who are already juggling a mountain of other responsibilities. The good news is that you don't have to try to interpret those forms yourself.

Check out our Estimated Tax Payments Calculator to figure out how much you owe, start planning your estimated tax payments, and stay on the IRS's good side.

 
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