Detailed Answer
(b) The requirement is to determine whether Edge
Corp. could compute its first quarter 2013 estimated income tax
payment using the annualized income method and/or the preceding
year method. A corporation generally must pay four installments
of estimated tax, each equal to 25% of its required
annual payment. A penalty for the underpayment of estimated
taxes can be avoided if a corporation’s quarterly estimated payments
are at least equal to the least of (1) 100% of the tax shown
on the current year’s tax return, (2) 100% of the tax that would be
due by placing the current year’s income for specified monthly
periods on an annualized basis, or (3) 100% of the tax shown on
the corporation’s return for the preceding year. However, the
preceding year’s tax liability cannot be used to determine estimated
payments if no tax liability existed in the preceding year or
a short-period tax return was filed for the preceding year.