Kapitol Services Corp estimates that its 2017 taxable income will be $500,000. Thus it is subject...

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.

Solutions

Expert 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.

ekkarill92 answered 1 year ago

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