Question

In 2017, NB Inc.'s federal taxable income was $242,000. Compute the required installment payments of 2018 tax in each of the following cases:

NB’s 2018 taxable income is $593,000.

NB’s 2018 taxable income is $950,000.

NB’s 2018 taxable income is $1,400,000.

What are the total installment payments for each?

Answer 1

For estimated tax purposes, the year is divided into four payment periods.

As per IRS, you don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year
• You were a U.S. citizen or resident for the whole year
• Your prior tax year covered a 12-month period

Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

NB’s 2018 taxable income is $593,000.

90% of current tax liability = $533,700 (593,000 * 90%)

100% of previous year tax = $242,000

whichever is smaller.

So, NB should pay $60,500 in each instalment. (242,000/4)

NB’s 2018 taxable income is $950,000.

90% of current tax liability = $855,000 (950,000 * 90%)

100% of previous year tax = $242,000

whichever is smaller.

So, NB should pay $60,500 in each instalment. (242,000/4)

NB’s 2018 taxable income is $1,400,000.

90% of current tax liability = $1,260,000 (1,400,000 * 90%)

100% of previous year tax = $242,000

whichever is smaller.

So, NB should pay $60,500 in each instalment. (242,000/4)