Taxes
Quarterly Estimated Taxes for Small Business Owners: How and When to Pay
3 min read
When you work for yourself, nobody withholds taxes from your income. The IRS still wants to be paid throughout the year, which is why most business owners make quarterly estimated tax payments.
Who needs to pay estimated taxes?
You generally need to make estimated payments if you expect to owe $1,000 or more in federal tax for the year after subtracting withholding and credits. That includes most profitable:
- Sole proprietors and single-member LLC owners
- Partners and multi-member LLC members
- S-corp owners whose salary withholding doesn't cover their total tax
- Freelancers and gig workers
The due dates
Federal estimated taxes are due four times a year:
| Payment | Covers income earned | Due date |
|---|---|---|
| 1st | January 1 to March 31 | April 15 |
| 2nd | April 1 to May 31 | June 15 |
| 3rd | June 1 to August 31 | September 15 |
| 4th | September 1 to December 31 | January 15 of the next year |
If a due date falls on a weekend or holiday, it moves to the next business day. Notice the periods aren't equal; the second payment comes just two months after the first.
How much should you pay?
There are two common approaches.
1. Safe harbor based on last year You generally avoid an underpayment penalty if you pay at least 100% of last year's total tax (110% if your prior-year adjusted gross income was over $150,000), divided into four payments. This is the simplest method when your income is growing.
2. Based on this year's actual profit Estimate this year's profit, calculate income tax plus self-employment tax, and pay at least 90% of that. This works better if your income dropped or is very uneven.
How to pay
- IRS Direct Pay or your IRS Online Account (free, from a bank account)
- EFTPS (the Electronic Federal Tax Payment System)
- Debit or credit card (processor fees apply)
- Mailing a check with a Form 1040-ES voucher
Save a confirmation for every payment and give the list to your tax preparer at year-end.
What about Washington?
Washington has no personal income tax, so there are no state estimated income tax payments. Your state obligations, such as B&O and sales tax, are paid on the filing schedule the Department of Revenue assigns you.
What happens if you miss a payment?
The IRS charges an underpayment penalty, which works like interest, for each quarter you paid too little. It's not catastrophic, but it adds up. If you missed a quarter, make the payment as soon as possible to stop the clock.
Tips that make it painless
- Move 25% to 30% of every payment you receive into a separate tax savings account
- Set calendar reminders a week before each due date
- Review your numbers mid-year and adjust if business picks up
The bottom line
Quarterly estimated taxes aren't optional for most profitable business owners. Choose a method, calendar the four dates, and pay a little at a time instead of facing a huge bill and penalties in April.
Need help getting this right? TRIG Bookkeeping & Tax Services helps new business owners in Washington with company registration, monthly and annual bookkeeping, and government compliance. Contact us to talk about your business.
This article is general information, not legal or tax advice for your situation. Tax rules and fees change, so confirm current details with the IRS, the Washington Department of Revenue, or a qualified professional.