Understanding Quarterly Estimated Taxes: What Every Small Business Should Know

If you’re self-employed or operate a small business, you may need to pay quarterly estimated taxes. Quarterly estimated taxes are a crucial part of staying compliant with the IRS. Unlike traditional employees who have taxes withheld automatically from each paycheck, many business owners must proactively send in their tax payments throughout the year.

Yet for many, estimated taxes are confusing—What are they? Who has to pay them? How do you calculate them? And what happens if you don’t?

This guide breaks it all down in simple terms so you can stay ahead of the game and avoid unnecessary penalties.

What Are Quarterly Estimated Taxes?

Quarterly estimated taxes are payments you make four times a year to cover your income tax and self-employment tax. Since taxes aren’t automatically deducted when you earn money as a business owner, the IRS requires you to estimate and pay your tax liability as you go.

These payments apply to:

• Sole proprietors

• LLC owners

• Freelancers

• Independent contractors

• S corporation shareholders (in many cases)

• Anyone with significant income that isn’t subject to withholding

If you expect to owe $1,000 or more in taxes for the year after withholding and credits, you likely need to pay estimated taxes.

Why Quarterly Taxes Matter

Quarterly estimated taxes keep you compliant and help you avoid:

• Underpayment penalties

• Large, unexpected tax bills at the end of the year

• Cash flow issues that come from paying everything all at once

They also help you stay aware of your financial performance. When you check in each quarter, you get a clearer picture of profits, expenses, and opportunities for tax planning.

When Are Quarterly Taxes Due?

The IRS divides the year into four payment periods:

• April 15 – For income earned January 1 to March 31

• June 15 – For income earned April 1 to May 31

• September 15 – For income earned June 1 to August 31

• January 15 (of the following year) – For income earned September 1 to December 31

If a deadline falls on a weekend or holiday, it's typically moved to the next business day.

Marking these dates on your calendar—or better yet, scheduling automatic reminders—can help you stay on track.

How to Calculate Estimated Taxes

Estimating your taxes isn’t always straightforward because your income may fluctuate throughout the year. Here’s the general approach:

1. Estimate your total expected income for the year.

Include business earnings, side income, and any other taxable sources.

2. Subtract deductible expenses.

These may include:

• Supplies

• Software

• Mileage

• Home office expenses

• Contract labor

• Utilities and rent

• Professional services

3. Calculate your taxable income and projected tax liability.

This includes:

• Income tax, based on your tax bracket

• Self-employment tax, which covers Social Security and Medicare

4. Divide the projected tax liability by four.

That amount becomes your quarterly estimated tax payment.

Because this process can get complex (especially when income changes), many business owners choose to work with a tax professional for more accurate estimates.

What If Your Income Changes Throughout the Year?

Small business income isn’t always predictable—and the IRS understands that. If your earnings increase or decrease during the year, you can adjust your remaining quarterly payments.

For example:

• If you earn more than expected, increase your next payments to avoid penalties.

• If you earn less, you may be able to reduce your remaining payments.

Quarterly reviews of your financials make these adjustments easier and help keep you compliant.

How to Pay Quarterly Taxes

The IRS offers several convenient ways to make payments:

• IRS Direct Pay (from a checking or savings account)

• Electronic Federal Tax Payment System (EFTPS)

• Debit or credit card payments (fees may apply)

• Mailing a check with Form 1040-ES

Most small business owners prefer EFTPS because it’s secure, free, and provides clear payment history.

What Happens If You Don’t Pay?

If you skip quarterly estimated taxes—or don’t pay enough—you may face:

• Underpayment penalties

• Interest charges

• A large tax bill when you file your return

Even if you're due a refund, the IRS can charge underpayment penalties if your quarterly payments were too low during the year.

Tips for Staying on Top of Quarterly Taxes

• Keep your bookkeeping updated monthly

• Review your profit and loss report quarterly

• Use accounting software to project income

• Set aside a percentage of each payment you receive

• Consult a tax professional—especially if your business is growing or unpredictable

Being proactive reduces stress and makes tax season much smoother.

Quarterly estimated taxes don’t have to be confusing or overwhelming. With organized records, accurate projections, and the right guidance, you can stay compliant and avoid costly penalties.

If you want help calculating your payments or staying ahead of your tax responsibilities, our team is here to support you year-round.

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