If you’re self-employed or running your own business, chances are you’re making estimated tax payments throughout the year. And if you’re not,you definitely should be.
Unlike W-2 employees, business owners don’t have taxes automatically withheld from their paychecks. That means it’s up to you to make those payments on time, and in the right amount, to avoid penalties. Unfortunately, the IRS doesn’t send you reminders, and the penalties for underpayment or late payment can add up quickly.
The worst part? These penalties are not deductible, so they hit your wallet even harder.
The good news is that making estimated tax payments doesn’t have to be stressful or complicated. With a little planning and a few key tools, you can stay compliant, avoid unnecessary fees, and keep more of your money working for you.
When Are Estimated Tax Payments Due?
If you’re paying estimated taxes quarterly, these are the key due dates to keep in mind:
For Tax Year 2024:
- April 15, 2024
- June 17, 2024
- September 16, 2024
- January 15, 2025
For Tax Year 2025:
- April 15, 2025
- June 16, 2025
- September 15, 2025
- January 15, 2026
Mark them on your calendar or set automatic reminders, missing one of these deadlines can result in penalties that are easily avoided with a little planning.
How Much Should You Pay to Stay Penalty-Free?
To steer clear of penalties, the IRS expects you to pay either:
- At least 90 percent of your current year’s tax, or
- 100 percent of last year’s tax (or 110 percent if your adjusted gross income was over $150,000 last year)
These are known as the IRS “safe harbor” rules. Meeting either of these thresholds generally protects you from underpayment penalties, even if you owe more when you file your return.
Earning Is Uneven? You Have Options
If your income fluctuates throughout the year which is common for freelancers, consultants, and seasonal businesses, you might benefit from using the annualized income method.
This method allows you to calculate your estimated payments based on what you’ve actually earned during each period, rather than assuming your income is evenly spread across the year. It’s a smart move if you tend to earn more in some months than others and want your tax payments to better reflect that.
Missed a Payment? Here’s What You Can Do
Life happens. Maybe you missed a payment or underpaid one quarter. Don’t panic, it’s not the end of the world.
You can always make a catch-up payment. While doing so won’t erase any penalties already accrued, it will stop the penalty from growing, which can help limit the damage. The sooner you catch up, the better.
Remember, the IRS charges interest daily, so time really is money in this case.
Pay the Easy Way: IRS Direct Pay and EFTPS
When it comes to actually making your payments, you’ve got a couple of secure, convenient options:
- IRS Direct Pay – A simple online tool that allows you to make payments directly from your bank account.
- EFTPS (Electronic Federal Tax Payment System) – A free service provided by the U.S. Treasury for scheduling and managing your federal tax payments.
Both options are safe, easy to use, and give you confirmation that your payment was received which is peace of mind worth having.
Need Help Figuring It Out? Let’s Talk
If you’re unsure how much to pay, when to pay, or whether you’re on track to avoid penalties, I’m here to help. Every business is different, and your tax strategy should reflect that.
Call me directly at 480 355-1398, and let’s review your estimated payments together. A quick check-in now can save you a lot of money and stress down the road.