Understanding Quarterly Taxes

Paying Quarterly Taxes is important for business success

Stephany Pruitt, MBA

12/29/20242 min read

If you’re a small business owner, freelancer, or independent contractor, you may be required to pay quarterly estimated taxes. These payments help you avoid penalties and ensure that your tax obligations are met throughout the year. Here’s a comprehensive guide to understanding quarterly estimated taxes and how to stay compliant.

What Are Quarterly Estimated Taxes?

Quarterly estimated taxes are periodic payments made to the IRS to cover income tax, self-employment tax, and other applicable taxes. Since small businesses and self-employed individuals don’t have taxes withheld from their income, the IRS requires these payments to prevent underpayment by year-end.

Tip: Even if you’re new to business ownership, estimated taxes might apply to you if you expect to owe more than $1,000 in taxes for the year.

Who Needs to Pay Estimated Taxes?

You need to pay quarterly estimated taxes if:

You’re self-employed, a freelancer, or an independent contractor.

You own a small business.

You earn income from dividends, rental properties, or capital gains.

Tip: If you also have a regular job with withholding, you can adjust your W-4 to reduce your quarterly tax burden.

How to Calculate Quarterly Estimated Taxes

To calculate your estimated tax payments, you’ll need to:

Estimate your total income, deductions, and credits for the year.

Use IRS Form 1040-ES to determine your tax liability.

Divide your total estimated tax liability by four to determine each payment.

Tip: Use accounting software or consult a tax professional to simplify calculations and ensure accuracy.

When Are Quarterly Taxes Due?

Quarterly taxes are typically due on the following dates:

April 15 (for January–March income)

June 15 (for April–May income)

September 15 (for June–August income)

January 15 of the following year (for September–December income)

Tip: If the deadline falls on a weekend or holiday, the due date is the next business day.

How to Pay Quarterly Estimated Taxes

You can make payments online, by phone, or via mail. The IRS offers several convenient methods:

Online: Use the IRS Direct Pay tool or the Electronic Federal Tax Payment System (EFTPS).

Mail: Send Form 1040-ES with your payment.

Tip: Keep records of all payments for your tax filing.

Penalties for Underpayment

If you don’t pay enough in quarterly taxes, you may face penalties and interest charges. The IRS typically imposes penalties if you:

Owe more than $1,000 in taxes after withholding and payments.

Fail to pay at least 90% of your current-year tax liability or 100% of the previous year’s liability.

Tip: Avoid penalties by using the IRS Safe Harbor rule or adjusting your payments as income fluctuates.

Benefits of Paying Quarterly Taxes

Avoidance of penalties: Stay compliant with tax laws.

Cash flow management: Spread out payments instead of facing a large bill at year-end.

Peace of mind: Reduce tax time stress by staying ahead of obligations.

Understanding and paying quarterly estimated taxes is a critical part of running a small business or working as a self-employed individual. By staying organized and proactive, you can avoid penalties and maintain financial health. If you need assistance calculating or managing your estimated taxes, our expert tax preparation services are here to help.