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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 9483
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
1929974
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We have new (7) small 10% shareholders that were issued K1s

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We have new (7) small 10% shareholders that were issued K1's for 2011 activity. Should they have paid estimated taxes in 2012 based on the 2011 S Corp results and same going forward? During the course of the year they would have no idea what the results would be for the same year.

NPVAdvisor :

Ideally yes, but the only price to pay MIGHT be a small underpayment penalty

NPVAdvisor :

In situations where profits are unpredictable, many wait and see until they have a better feel for what's coming in. There's ll be 4 opportunities to make an estimate payment every year

NPVAdvisor :

Here's the IRS guidance:

NPVAdvisor :

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes

NPVAdvisor :

And here's the form S-Corp shareholders use

NPVAdvisor :

http://www.irs.gov/file_source/pub/irs-pdf/f1040es.pdf

NPVAdvisor :

Sorry, meant to make thos both ,links

Customer:

Thank you I will read the link info. These shareholders do not have acess to financiakl information durin g the course of the year...only year end information at the time they receive their K1's.

NPVAdvisor :

If the amounts are small relative to their total income there may not even be a need ... but a best practice WOULD be to keep them aware through a newslette/communique, etc

NPVAdvisor :

See this:

NPVAdvisor :

You do not 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

NPVAdvisor :

And this:

NPVAdvisor :

When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for prior year as a starting point. Use your prior year's federal tax return as a guide. You can use the worksheet in Form 1040-ES (PDF) to figure your estimated tax. You will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter. You want to estimate your income as accurately as you can to avoid penalties.

NPVAdvisor :

...thought these kinds of things might be nice to send to them

NPVAdvisor :

And finally:

NPVAdvisor :

Underpayment of Estimated Tax


If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. 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.

NPVAdvisor :

Can I help you with anything else?

NPVAdvisor :

...not seeing you there. What I typically do at some point is switch to the Question & Answer mode, which will still let us continue the dialogue, just not in real-time ... give it a few more, though

Lane and 2 other Finance Specialists are ready to help you

Thanks much!


Good luck, finding capital is tough these days. You must be doing something right.



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Thanks,
Lane