For many small business owners, tax time doesn’t just come once a year—it comes four times. If you’re self-employed, run an LLC, or earn income outside of traditional W-2 wages, you’re likely responsible for making quarterly estimated taxes.
Failing to understand and plan for these payments can lead to unexpected tax bills and avoidable penalties. This guide will help you understand who needs to pay estimated taxes, how to calculate them, when they’re due, and what happens if you miss a deadline.
Who Needs to Pay Quarterly Estimated Taxes?
The IRS requires individuals to pay taxes as income is earned. If you’re not having taxes automatically withheld from paychecks—like an employee does—then you’re expected to make estimated tax payments throughout the year.
You likely need to pay quarterly estimated taxes if:
- You’re self-employed (freelancer, sole proprietor, gig worker, or independent contractor)
- You own a small business structured as a sole proprietorship, partnership, S-corporation, or LLC
- You expect to owe at least $1,000 in federal income tax when you file
- You don’t have enough tax withheld through other income sources (like W-2s, investments, or pensions)
This rule applies to all types of business income, including consulting fees, side hustles, online sales, rental income, and even cryptocurrency gains.
What Income Requires Estimated Payments?
Quarterly estimated taxes cover your share of:
- Federal income tax
- Self-employment tax (Social Security and Medicare)
- Any applicable additional taxes (e.g., Net Investment Income Tax)
If you live in a state with income tax (like Tennessee for interest and dividend income), you may also need to make estimated payments to your state revenue agency.
How to Calculate Quarterly Estimated Taxes
There are two main ways to estimate what you owe:
1. Safe Harbor Method (Recommended for Consistency)
This method ensures you avoid penalties even if your income fluctuates:
- Pay 100% of the prior year’s tax liability, or
- Pay 110% if your adjusted gross income (AGI) was over $150,000
You divide that total by four and submit equal quarterly payments.
2. Current-Year Method (Best for Variable Income)
If your income is uneven or seasonal, you may base your payments on what you actually expect to earn each quarter.
Steps to calculate:
- Estimate total annual income
- Subtract business expenses
- Calculate estimated taxable income
- Apply appropriate tax rates (income tax + self-employment tax)
- Divide the total by four
You can use IRS Form 1040-ES and its worksheet, or work with a CPA who can forecast your liability and adjust payments as needed.
When Are Quarterly Estimated Taxes Due?
Estimated taxes are due four times per year, with payment deadlines based on the calendar year—not every three months evenly. Here are the typical due dates:
| Income Earned Period | Estimated Tax Due Date |
| January 1 – March 31 | April 15 |
| April 1 – May 31 | June 15 |
| June 1 – August 31 | September 15 |
| September 1 – December 31 | January 15 (following year) |
If the due date falls on a weekend or holiday, the payment is due the next business day. You can pay online at IRS.gov/payments or mail in Form 1040-ES with a check.
How to Pay Quarterly Estimated Taxes
The IRS offers several payment options:
- Direct Pay through your bank account
- EFTPS (Electronic Federal Tax Payment System) – ideal for recurring payments
- Debit/credit card – third-party processing fees apply
- Mailing a check with Form 1040-ES
Tip: Set calendar reminders or automate your payments through EFTPS to avoid missing deadlines.
Penalties for Missing or Underpaying
If you don’t pay enough in quarterly estimated taxes—or miss a due date—you may face IRS penalties and interest, even if you pay your full tax bill by the April 15 deadline.
Penalties apply if:
- You owe more than $1,000 in tax and didn’t pay enough throughout the year
- You paid less than 90% of your current-year tax or less than 100% of the prior year’s tax (110% for high earners)
- You missed a payment deadline
These penalties accrue based on how late the payment is and how much is underpaid.
To avoid surprises, aim to meet the safe harbor thresholds or adjust quarterly payments based on actual performance.
Common Mistakes to Avoid
- Ignoring quarterly taxes altogether: Many new business owners are surprised by how much they owe in April. Spreading payments across the year prevents a big hit later.
- Failing to adjust for income changes: If your income increases significantly, update your estimates mid-year to avoid underpayment.
- Not setting aside funds regularly: Use a separate tax savings account and move a percentage of each payment (20–30%) into it.
- Missing state requirements: Check if your state requires estimated tax payments. Tennessee, for example, does not tax earned income but does apply the Hall Tax to investment income (though it’s largely phased out).
Should You Work With a CPA?
For many small business owners—especially those with fluctuating income or multiple revenue streams—working with a tax professional can be a worthwhile investment.
A Nashville CPA like Kawatra CPA can:
- Help you calculate accurate estimates
- Identify additional deductions or credits
- Ensure compliance with IRS and state rules
- File forms and manage payment schedules
If you’re based in Nashville, partnering with a local CPA who understands both federal and Tennessee-specific tax rules can provide added peace of mind.
Stay Ahead with Planning
Quarterly estimated taxes are a necessary part of small business ownership. By understanding who needs to pay, how to calculate your payments, and when to submit them, you can stay compliant—and avoid penalties that eat into your profits.
Whether you’re a freelancer, a solopreneur, or running a growing company, planning for estimated taxes ensures you’re building a sustainable business. Stay organized, track your income, and don’t hesitate to get professional help when needed.