Tax Tip: Tax Free So Far? We Hate to Tell You, But...
Let's say your new company has yet to pay taxes -- first because it didn't generate a profit and then because the many tax credits from operating losses offset tax liabilities. You may not know it, but IRS risks loom large during your first tax-positive year.
It all has to do with the payment of quarterly estimated taxes -- an often-changing and particularly complex area of the tax law. "It doesn't cut it with the IRS if you say, 'I didn't pay any estimated taxes this year because I didn't owe any last year,' " says Jim Connor, a partner in the Washington, D.C., national tax office of Coopers & Lybrand. You can expect penalties if you fail to meet one of the IRS's complicated guidelines on corporate quarterly estimated tax payments.
Companies that expect to cross the tax-positive threshold in 1995 "in most cases can make things easier by figuring out how to owe a small amount of taxes now," says Connor. If you can work out a plan with your accountant to pay only $50 or $100 in 1994 taxes, you can avoid IRS hassles by simply paying one-fourth of that liability in estimated taxes each quarter next year.* * *