Guide to managing and paying quarterly taxes

As a business owner, paying quarterly estimated taxes provides you with reassurance that there won’t be a large tax bill waiting for you in April.

You have to pay taxes — but fortunately, the Internal Revenue Service (IRS) has a chart for quarterly tax dates so you don't have to worry about missing a payment date.

In this guide, you’ll learn when quarterly taxes are due, how to calculate and pay quarterly taxes and what happens if you miss a payment. Please consult your own tax advisor for more information.

Who pays quarterly tax estimates?

Your expected taxes at the end of the year should indicate whether you have to pay each quarter. Here’s a breakdown of the threshold for owing quarterly taxes:

• If you expect to owe $1,000 or more at the end of the year: Individuals including sole proprietors, partners or S corporation shareholders are generally required to make estimated payments when their expected tax liability is $1,000 or more. The exception is farmers or fishermen, who must follow different rules for estimated tax payments.
• If you expect to owe $500 or more at the end of the year: Corporations fall under a lower threshold for compliance. If you are incorporated and expect to owe at least $500 in taxes when you file your corporate tax return, you are required to pay quarterly estimated tax payments.

When are quarterly tax payments due?

Quarterly tax dates generally fall 15 days after the end of a quarter.

• First quarter: From January 1 – March 31
  Estimated tax payment is due by April 15
• Second quarter: From April 1 – May 31
  Estimated tax payment is due by June 15
• Third quarter: From June 1 – August 31
  Estimated tax payment is due by September 15
• Fourth quarter: From September 1 – December 31
  Estimated tax payment is due by January 15 of the following year.

Always refer to the IRS website when scheduling your payments. There may be changes to the tax deadlines during national emergencies or IRS technical difficulties.

How do I calculate my quarterly tax payment?

It can be confusing to estimate your yearly expected adjusted gross income, taxable income, deductions and tax credits. This is particularly hard if you’re a freelancer and your income varies during the year.

There are three methods that might help you determine your estimated tax payments. The IRS has named these "safe harbor" methods because generally you will not incur a penalty if you end up still owing taxes when you file your return. These methods are:

• 90%. Estimate what you will owe in taxes this year, multiply it by 90% and divide it into four equal payments, one for each quarterly tax due date.
• 100%. Use last year's tax obligation before estimated payments, withholding, or refundable credits, then divide that into four equal payments. If your adjusted gross income exceeds $150,000, use 110% of last year's tax obligation.
• Annualized. If you make the bulk of your money during only one quarter of the year, it may be easier for you to annualize your income and deductions and pay four equal payments throughout the year. However, this will require additional forms to be filed with your tax return.

You should consult your own tax advisor to determine which is the best method to figure out your estimated tax payments.

What happens if I underpay or don't make an estimated tax payment?

If you fail to make any estimated payments, you could be assessed penalties and interest on the unpaid portion. Using a safe harbor method of calculating your quarterly tax payments, might generally prevent the IRS from charging a penalty for underpaying your estimated taxes.

If your payment to the IRS is returned for insufficient funds, it is considered nonpayment and you could be penalized. Finally, if you make your estimated payment late, you could incur a penalty even if you are due a refund.

Can I pay my estimated quarterly taxes online?

Yes! The IRS allows you to make your estimated payments online. You have the option of paying with a credit or debit card, or by electronic funds withdrawal during e-filing.

When you’re starting a business, it’s wise to have trusted advisors who can answer questions and provide tax guidance. Be sure to talk to a Certified Public Accountant or tax advisor to determine your estimated taxes obligations and meet with your local business banker to find out how to pay your quarterly taxes with your business credit or debit card.