Volos Company (a calendar-year corporation) began operations in March of 2014 and was not profitable through December of 2015. Volos has been profitable for the first quarter of 2016 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2016 because it had no tax liability for the 2015 tax year and has been in business for at least 12 months.
Estimated taxes are due if the corporation expects to incur a tax liability of $500 or more for the year. A corporation can base its estimated payments on the prior year's tax liability only if it is positive, which is not the case here.

Question

Quizplus · Accepted Answer

The statement is incorrect. A corporation can also base its estimated payments on the prior year's taxable income if it's positive, not just the tax liability. In this case, since Volos Company had no tax liability for the 2015 tax year, it cannot base its estimated payments on the prior year's tax liability or taxable income.

Volos Company (A Calendar-Year Corporation) Began Operations in March of 2014