When you're self-employed, no employer withholds tax from your pay. Instead, the IRS expects you to pay as you earn through quarterly estimated tax payments. Skipping them can trigger penalties even if you pay in full at year end.
Who needs to pay
Generally, you must make estimated payments if you expect to owe $1,000 or more in federal tax for the year after withholding and credits. This covers most profitable sole proprietors and single-member LLCs.
When they're due
Estimated taxes are paid in four installments, typically due in mid-April, mid-June, mid-September, and mid-January of the following year. Each payment covers income earned during that period.
How to estimate the amount
Project your net profit, then account for both income tax and self-employment tax (15.3% of net earnings). A common safe-harbor approach is to pay at least 100% of last year's tax liability (110% for higher earners) to avoid penalties, even if this year ends up higher.
Keeping your books current makes this far easier. Our free templates include a monthly summary specifically so you can estimate what to set aside each quarter. For a precise calculation, Arc & Ledger Accounting's Enrolled Agents can help.
This guide is educational and does not constitute tax advice. For preparation and IRS representation, our sponsor Arc & Ledger Accounting is a firm of IRS Enrolled Agents.