C Corporations: Tips For Year-End Tax Planning

When considering year-end tax planning strategies, tax-paying corporations, otherwise known as C corporations, should factor 2012 estimated taxes into their 2011 year-end plans.

C corporations are required to pay their entire 2012 tax liability through quarterly estimated tax payments. However, a corporation that filed a return for 2011 showing at least $1 in tax liability can avoid an underpayment penalty for 2012 by making estimated tax payments at least equal to the tax shown on its 2011 return.

This "last-year's tax" exception is not available to any corporations that:

  • Did not file a return for the entire year 2011
  • Did not have a tax liability for 2011 (e.g., had a net operating loss)
  • Had taxable income of at least $1 million in 2009, 2010 or 2011

Corporations expecting significant income for 2012, and correspondingly significant estimated tax payment requirements, should consider the following planning points as year-end 2011 approaches:

1. If the corporation is expecting a net operating loss (NOL) for 2011, the refund available from a carryback of the NOL should be weighed against the estimated tax payment requirements for 2012. If the carryback potential is significant, the corporation may want to plan year-end transactions with an eye to maximizing the NOL. For example, the corporation may, to the extent permitted by law, attempt to defer income from 2011 to 2012 and accelerate deductions from 2012 to 2011.

However, if the carryback potential is not significant, the corporation may attempt to plan year-end transactions to eliminate the NOL and produce a small tax liability. Such a strategy will limit the estimated tax requirements for 2012 and allow the corporation to pay most of its 2012 tax in 2013.

2. If the corporation did not have taxable income of at least $1 million in 2009 and 2010 but is expecting taxable income in excess of $1 million for 2011, a year-end planning strategy to hold 2011 taxable income below $1 million may be in order. By keeping 2011 taxable income below $1 million, the corporation will preserve its option to use the "last-year's tax" exception for 2012.

If the corporation's taxable income reaches $1 million for 2011, the last-year's tax exception will be unavailable for 2012-2014.

 
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