Quarterly Estimated Taxes (Form 1040-ES / Form 1120-W)

Who must pay and when

If you expect to owe \$1,000+ in federal tax not covered by withholding, you must pay quarterly estimates. For sole proprietors and pass-through entities (LLC members, S-corp shareholders, partnership partners), this typically means anyone with meaningful business income.

Federal due dates: April 15, June 15, September 15, and January 15 of the following year. (Note the irregular June 15 — only two months after April 15.) Most states require parallel quarterly payments on similar schedules.

Safe harbor and avoiding penalties

The IRS imposes an underpayment penalty (currently ~8% annualized) on quarters paid late or short. Two safe harbors avoid the penalty: (1) pay 90% of current-year tax, or (2) pay 100% of last year's tax (110% if last year's AGI was over \$150K).

The simplest discipline: at year-end, calculate last year's total tax × 110% / 4, and pay that exact amount each quarter regardless of current-year income volatility. You'll be safe-harbored automatically. Hold the cash in a separate tax escrow account — see 'Bank Account Structure.'

Calculating and paying without surprises

The safe-harbor rule is the simplest discipline: pay 100% of last year's tax liability (110% if your AGI exceeded $150k), divided into four equal quarterly payments. As long as you make those payments on time, the IRS won't assess underpayment penalties even if your current-year liability turns out to be much higher. Any shortfall is settled at filing without interest or penalty.

The deadlines are April 15, June 15, September 15, and January 15 of the following year. Note that these are not evenly spaced — Q2 covers only April and May, Q3 covers June through August, Q4 covers September through December. This is a perpetual source of confusion; many sole proprietors miss the June 15 deadline because they expect a normal three-month gap.

Operationally, the cleanest approach is to sweep a fixed percentage of every revenue deposit (typically 25-30% for a small business owner with passthrough income) into a tax-holding account at the moment cash arrives, then pay quarterly from that account. The percentage gets refined each year based on your effective rate; the discipline of routing tax money out of the operating account immediately is the single best protection against underpayment surprises.

When income jumps materially mid-year (a one-time bonus, a sale of an asset, a large winning quarter), recalculate estimated payments immediately rather than waiting for the next quarterly deadline. The annualized installment method lets you adjust upward without retroactive penalty; the safe-harbor method based on prior year still applies as a floor. Many under-payment penalties come from people who knew about the income spike but didn't update the payments until April.