If you missed your 2025 estimated tax payments or paid less than you should have, there’s a good chance the IRS is planning to charge you a penalty.
And not just any penalty… a non-deductible 7% penalty that compounds daily.
Sounds painful, right? Let’s break down what this really means, why it’s so costly, and most importantly, how you can make these penalties disappear completely.
The Penalty Problem (And Why It’s More Expensive Than You Think)
When you miss estimated tax deadlines, the IRS doesn’t treat it lightly. They apply a 7% penalty that quietly grows every single day you’re late.
And here’s the worst part:
Penalties are not deductible.
This makes them far more expensive than paying interest or borrowing money.
Even if you write a check today to catch up on your taxes, you’re still stuck with those penalties.
You’ll stop them from getting bigger but you won’t erase the damage already done.
But don’t worry, there is a legal, effective solution that can make the IRS treat your missed payments as if they were made on time.
The One Perfect Solution: The 60-Day Rollover Strategy
There is one powerful IRS-approved method that can erase estimated tax penalties instantly. It works because it uses the tax withholding rules on retirement accounts to your advantage.
Here’s how to make it work:
- Withdraw funds from your IRA, 401(k), or another eligible retirement plan.
When you do this, instruct the custodian to withhold federal income tax from the withdrawal. - Repay the full amount into the retirement account within 60 days.
Use other funds not the withheld amount to put the full withdrawal back.
Here’s the magic:
The IRS treats the withheld taxes as if they were paid evenly across all four quarterly deadlines.
So even if you missed payments earlier in the year, the withholding counts as perfectly on time.
And because you replaced the full amount within 60 days:
- The withdrawal is not taxable
- No early withdrawal penalty applies
- You eliminate the estimated tax penalties entirely
It’s one of the smartest, cleanest tax planning moves available yet many business owners don’t know it exists.
Other Options and Important Pitfalls to Avoid
The rollover strategy is incredibly effective, but here are some other considerations depending on your situation:
If You’re Age 73 or Older
You can use withholding from your required minimum distributions (RMDs) instead.
This allows you to:
- Satisfy your mandatory RMD
- Cover your estimated taxes
- Avoid penalties, since withholding is treated as if paid evenly throughout the year
This is a great solution if you already have to take an RMD anyway.
Withholding From a W-2 Bonus
It might be tempting to catch up using withholding from a year-end bonus, but this creates two problems:
- You’ll trigger payroll taxes
- You could reduce your Section 199A deduction
In many cases, those extra taxes cost more than the penalty you’re trying to avoid.
Stick with retirement account withholding, it’s cleaner, safer, and much more tax-efficient.
If you missed your estimated tax payments for 2025, don’t panic and definitely don’t assume you’re stuck with the penalty.
With the right strategy, especially the 60-day rollover, you can:
✔ Wipe out penalties
✔ Avoid unnecessary taxes
✔ Stay fully compliant with IRS rules
The IRS gives you only one chance to fix this properly, so make sure you understand the steps or have a professional guide you.
If you want help walking through this strategy or checking whether you qualify, Basc Expertise is here to help you make the best, most tax-efficient moves before the year ends.