Question

MANSFIELD INCORPORATED, A CALENDAR YEAR CORPORATION, IS EXPECTING TO HAVE A CURRENT YEAR TAX LIABILITY OF $100,000. WHICH BEST DESCRIBES THE TAX PAYMENTS MANSFIELD SHOULD MAKE TO AVOID PENALTY?

a. Make a payment at the end of June and December of $40,000 each and $20,000 when filing the return on the original due date.

b. Make no payments during the year but pay the entire balance on the extended due date

c. Make no payments during the year but pay the entire balance on the original due date

d. Make quarterly payments totaling $100,000 all during the current year.

e. None of these will avoid penalty  

Answer 1

Ans: Make quarterly payments totaling $100,000 all during the current year.

Solu: Mansfield should make a quaterly payment of $ 25000 because Mansfield did not owe a tax liability last year, it must use the current year tax liability to determine its minimum estimated tax payments (ignoring the annualized income method). In this case, the current year tax liability is expected to be $100,000 so Mansfield quarterly estimated tax payments would be $25,000 (25% x 100,000).