Quarterly estimated taxes for small businesses
How self-employed individuals and small business owners pay taxes during the year. And how to avoid underpayment penalties.
Direct answer
If you expect to owe $1,000 or more in federal taxes for the year, the IRS requires you to pay estimated taxes quarterly. In April, June, September, and January. Missing or underpaying these installments results in an underpayment penalty. The simplest approach is to pay 100% of last year's tax bill across four equal payments.
Simple explanation
Employees have taxes withheld from every paycheck. Self-employed people don't. So the IRS requires them to estimate and pre-pay taxes four times a year. Most first-year business owners don't know this and get hit with a penalty when they file their annual return.
How to handle quarterly estimated taxes
- 1
Understand who needs to pay
If you expect to owe $1,000 or more in federal income tax for the year (after credits and withholding), you're required to pay quarterly. This includes self-employed individuals, freelancers, sole proprietors, and business owners who take distributions.
- 2
Know the four due dates
Q1 (Jan–Mar): April 15. Q2 (Apr–May): June 15. Q3 (Jun–Aug): September 15. Q4 (Sep–Dec): January 15 of the following year. Mark these on your calendar and set reminders.
- 3
Calculate a safe payment amount
The safest method: pay 100% of last year's total tax bill in equal quarterly installments (110% if last year's adjusted gross income exceeded $150,000). This is the 'safe harbor' rule. If you hit it, no penalty applies even if you end up owing more.
- 4
Pay directly at IRS.gov
Use IRS Direct Pay (free) or the Electronic Federal Tax Payment System (EFTPS) to make payments online. Keep your confirmation numbers.
- 5
Set aside money monthly
A practical rule: set aside 25–30% of every payment you receive into a separate savings account labeled 'taxes.' This removes the quarterly payment from your operating cash flow and prevents surprise shortfalls.
Summary
- •Pay quarterly if you expect to owe $1,000+ in federal taxes.
- •Due dates: April 15, June 15, September 15, January 15.
- •Safe harbor: pay 100% of last year's tax in equal installments.
- •Set aside 25–30% of income monthly so the payment isn't a surprise.