Quarterly estimated taxes: what small business owners need to know

When you’re an employee, taxes come out of every paycheck automatically. Your employer withholds federal and state tax, and by the time April rolls around, most of what you owe has already been paid. Running your own business works differently.

As a small business owner, sole proprietor, or partner, no one is withholding tax on your behalf. The IRS still expects tax to be paid as you earn it, so it built a system called quarterly estimated taxes — four payments spread across the year instead of one lump sum in April.

Who needs to pay them

If you expect to owe $1,000 or more in tax for the year after subtracting withholding and credits, you generally need to make estimated payments. This applies to most sole proprietors, partners in a partnership, and S-corporation shareholders who don’t have tax withheld from a paycheck.

If you’re newly self-employed, this can catch you off guard. Your first year in business is often the first time you’re responsible for figuring out and sending in your own tax payments, rather than having it happen automatically in the background.

How the payments work

Despite the name, the payments aren’t evenly spaced by calendar quarter. The typical due dates are April 15, June 15, September 15, and January 15 of the following year. Each payment covers a period of income, and the IRS expects a reasonably accurate estimate for that period.

Payments are calculated using Form 1040-ES, a worksheet the IRS provides for estimating your income, deductions, and tax liability for the year. Many business owners base their estimate on the prior year’s tax return, then adjust it if the current year looks meaningfully different.

What happens if you skip a payment or pay too little

If you don’t pay enough throughout the year, the IRS can charge an underpayment penalty — essentially interest on the difference between what you paid and what you should have paid. This applies even if you pay everything owed by the April filing deadline.

The good news is this is entirely avoidable with a bit of planning. Most business owners who stay current on their estimated payments never think about the penalty at all, because it simply doesn’t come up.

Why this trips people up

Two things usually catch business owners off guard: figuring out how much to pay, and remembering to actually pay it four times a year instead of once. Income can vary from quarter to quarter, which makes a single estimate hard to get exactly right, and the deadlines don’t always line up with when you happen to be thinking about taxes.

This is where year-round attention makes a real difference. Rather than guessing at a number in April and hoping it’s close, working with a CPA throughout the year means your estimate gets recalculated as your income changes, so you’re never caught off guard by a payment you forgot.

Don’t forget the state side

Federal estimated taxes are only half the picture. Most states that have an income tax — including New York and New Jersey — require their own quarterly estimated payments, separate from what you send the IRS.

State rules often follow a similar shape to the federal system, but they are not identical. New York and New Jersey each use their own estimated tax form and generally follow the same April, June, September, and January due dates as the IRS, though the income thresholds for who must pay can differ from the federal rule.

If you live in one state and do business in another — or your work crosses state lines — you may owe estimated payments to more than one state, each with its own form and its own numbers. This is one of the more common ways business owners end up underpaying: they plan carefully for the federal payment and overlook the state one, or assume the two follow identical rules when they don’t.

A CPA who works across state lines can tell you exactly which states you owe estimated payments to, calculate each one correctly, and keep the federal and state pieces coordinated so nothing gets missed.

Working with a CPA who keeps you on track

Quarterly estimated taxes are one of the clearest examples of why business tax planning isn’t a once-a-year task. A CPA who understands your business can calculate a realistic estimate, remind you before each due date, and adjust your numbers as your income shifts throughout the year.

Jessie Dong CPA, LLC works with sole proprietors, partnerships, and corporations across all 50 states, entirely online. That includes ongoing support with quarterly estimated taxes — not just a single conversation each April, but year-round attention that keeps your business on track.

Book a free consultation — no obligation, no jargon.