Learning about taxes (CA FTB 100-ES)
Posted Aug. 15, 2008 by Gabriel Hurley
Taking care of the financial business for Zero Coordinate is easily the most difficult part of the job, I have to say. The decentralized, poorly organized, hard-to-find information regarding taxes, tax payments, and exactly how to go about it all just doesn't cut it more often than not. It's easy to see why the preferred method is to simply hire a professional to do it.
California in particular has really vague information about the rules for estimated tax payments. The Franchise Tax Board's form 100ES and even the accompanying instructions really don't give the information a new corporation needs. There are all sorts of exceptions and loopholes for the first year, and they really don't go into that at all. Seems to me that a new corporation is the one that needs the most help in getting it right, not the least help.
So what it turns out is that while California has a minimum franchise tax for corporations of $800, that tax is waived for the first tax year of the business. Instead, you have to estimate the income you expect to bring in for the year. And not just income, we're talking net taxable income. It'd be one thing to estimate gross income and just figure how much you plan on taking in. But instead you have to figure out how much money you're going to have left over after everything's said and done and if there are any circumstances that will raise or lower that amount.
As much as I don't like that system, there is one case in which it works out really nicely. When the business expects to operate at a loss for the first year, the whole thing becomes moot. There are no estimated taxes due.
And the final piece that puts it all together is that if there are no estimated taxes due, you don't even have to file any forms to tell the FTB that. It seems really strange, but you just don't send them anything until the final year-end return is due, at which point you report that you didn't make enough to owe any taxes at all, and you're done.
Obviously I'm no expert on this subject, but with everything that I've read so far, that's the best I can understand it. Maybe with any luck this post will help alleviate some future confusion for others.
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