How to Pay 1120 Taxes for Your Business

Filing taxes as a corporation involves more than submitting Form 1120 to the IRS. Businesses must pay their corporate tax liability correctly and on time to avoid penalties and interest. Understanding the payment process helps prevent costly mistakes.

Corporations can make payments through electronic transfers, checks, or credit cards. Some businesses must also make estimated tax payments throughout the year. Keeping accurate records is essential for compliance and financial tracking.

Determining Your Corporate Tax Liability

Corporate tax liability is based on taxable income, which is total revenue minus allowable deductions. As of 2024, the federal corporate tax rate is 21%. Deductions include business expenses such as salaries, rent, and depreciation. Tax credits, like the Research & Development Credit, can further reduce the amount owed.

Accurate financial records are essential for reporting taxable income. The IRS requires corporations to follow specific accounting methods, such as accrual accounting, which records income when earned and expenses when incurred. Larger corporations must adhere to Generally Accepted Accounting Principles (GAAP), while smaller businesses have more flexibility.

State corporate taxes also affect total liability. Some states, like Texas and Washington, impose a gross receipts tax instead of a corporate income tax, while others, such as California and New York, have their own rates and formulas. Businesses operating in multiple states must comply with each jurisdiction’s tax laws and may need to file separate state returns.

Available Payment Methods

Once a corporation determines its tax liability, it must submit payment to the IRS. Several options are available, each with different processing times, fees, and recordkeeping considerations.

Electronic Federal Tax Payment System

The Electronic Federal Tax Payment System (EFTPS) is a free service provided by the U.S. Department of the Treasury. Businesses must enroll in advance, which can take up to five business days. Payments can be scheduled ahead of time to ensure timely submission.

EFTPS provides immediate confirmation and allows businesses to review past transactions for recordkeeping. Payments must be scheduled by 8:00 PM Eastern Time the day before the due date to be considered on time.

Check or Money Order

Corporations can mail a check or money order to the IRS, payable to the “United States Treasury.” Payments must include the corporation’s Employer Identification Number (EIN), tax year, and Form 1120 on the memo line. The IRS provides mailing addresses based on location.

A payment is considered timely if postmarked by the due date. To avoid delays, businesses should use certified mail with a return receipt. Copies of checks, money orders, and IRS correspondence should be retained for records.

Credit Card Payment

The IRS accepts credit card payments through third-party processors, which charge a convenience fee, typically between 1.87% and 1.98% of the payment amount. Payments can be made online or by phone through IRS-approved processors such as PayUSAtax, Pay1040, and ACI Payments.

Credit card payments are processed immediately, and businesses receive a confirmation number for records. However, corporations should consider interest charges if the balance is not paid in full, as credit card interest rates can exceed IRS late payment penalties.

Estimated Tax Obligations

Corporations expecting to owe at least $500 in federal income tax must make estimated payments throughout the year. These payments ensure businesses remit taxes as income is earned rather than waiting until the annual return is filed.

Estimated taxes are due in four quarterly installments: April 15, June 15, September 15, and December 15 for calendar-year corporations. If a due date falls on a weekend or holiday, it shifts to the next business day. Missing a deadline can result in penalties, calculated based on the underpaid amount and the period it remained unpaid. The IRS adjusts the penalty rate quarterly based on the federal short-term interest rate plus three percentage points.

Corporations can calculate payments using the annualized income installment method, which adjusts for fluctuating income, or the regular installment method, which divides the prior year’s tax liability into four equal payments. Businesses with no prior-year tax liability may be exempt from estimated payments, but only if they were in existence for the full prior tax year.

Recordkeeping for Tax Payments

Maintaining organized tax payment records is essential for compliance and financial accuracy. The IRS requires businesses to keep documentation supporting all filings, including payment confirmations and bank statements. Proper record retention ensures smooth audits and helps reconcile financial statements.

Beyond IRS compliance, detailed records are necessary for financial reporting under GAAP and International Financial Reporting Standards (IFRS). Tax payments must be properly classified in financial statements, and any deferred tax liabilities or assets must be disclosed. Errors in recording payments can lead to misstated financials, affecting investor confidence and regulatory scrutiny.

Digital recordkeeping solutions, such as enterprise resource planning (ERP) systems and cloud-based accounting software, can streamline tax documentation. Platforms like QuickBooks, SAP, and Oracle NetSuite automate payment tracking, reducing the risk of lost records or manual entry errors. Implementing internal controls, such as dual authorization for tax payments and periodic reconciliations, strengthens financial oversight.