When are my quarterly estimated taxes due, and how do I avoid penalties?
If you’re self-employed, you generally pay estimated taxes four times a year instead of having taxes withheld from a paycheck. The due dates are April 15, June 15, September 15, and January 15 of the following year. When a due date falls on a weekend or federal holiday, it shifts to the next business day.
The April payment covers income from January through March. June covers April and May. September covers June through August. January covers September through December. The periods aren’t even quarters, which trips people up the first time they see the schedule.
Underpaying triggers an interest charge from the IRS. The rate changes each quarter and has been running between 7% and 8% recently. The IRS calculates the charge on the underpaid amount for each period, so falling short early in the year costs more than falling short on the final payment. State taxes typically follow the same schedule, and most states charge their own interest on underpayments.
The safe harbor rules are how you avoid the penalty. If you pay at least 100% of what you owed last year, spread across the four payments, you’re safe even if your income is higher this year. If your adjusted gross income was over $150,000 last year, that threshold goes up to 110% of last year’s tax. The other path is paying at least 90% of what you’ll actually owe this year, but that requires estimating your current year income accurately.
Most self-employed owners use the prior year method because it’s simpler. You know what you owed last year, so you can divide that by four and pay it. The current year method works better when your income drops significantly, since you’d otherwise overpay and wait for a refund.
Getting the payment amounts right is where tax planning comes in. The goal is paying enough to avoid penalties without overpaying and tying up cash you could use in the business. Simona is a CPA and Enrolled Agent who works with self-employed owners to size these payments correctly throughout the year.
If you’re behind on estimated payments or not sure what you should be paying, it’s worth getting a handle on the numbers before the next deadline. Our bookkeeping and tax services are built for owner-operated service businesses, and a quick consultation can help you figure out where you stand and what the right payment amount is for your situation.
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