What to Know About Estimated Tax Payments

Written By Karrissa Jyles

When you’re a small business, it’s a good idea to pay your estimated taxes and make tax season less stressful. Here’s how.

What are estimated tax payments?

Estimated taxes are what small businesses owners pay on a quarterly basis each fiscal year.

Your estimated taxes as a small business owner could include the following:

  • Federal income tax

  • Self-employment tax (Social Security and Medicare taxes)

  • Employment and state taxes (if applicable)

A good rule of thumb is if you believe you’ll owe more than $1,000 in taxes, you should make estimated tax payments. 

While you could wait to pay your full tax bill during tax season, estimated taxes make it easier to manage your tax burden by paying in installments. This helps small businesses to avoid the IRS’s late fees and penalties if your tax bill is paid late or the amount is too low.

When should you pay estimated taxes?

Since estimated taxes are due quarterly, it’s important to make a plan to pay on time (again, to rid yourself of those pesky late fees!).

There are four estimated tax payments due throughout the year. Check out the dates below.

Income Earning Period                  Estimated Tax Payments Due

January 1st to March 31st April 15th

April 1st to May 31st June 15th

June 1st to August 31st September 15th

September 1st to December 31st January 15th the next year

We recommend creating a financial plan for your business to start saving for estimated taxes.

How do you pay your estimated taxes?

What to pay

Since your basic estimated taxes include your federal income and self-employment tax, what you’ll pay is based on the following:

Your business’s income earned: You’ll need to total your net earnings for each income period and multiply it by the self-employment tax (and other taxes you’re responsible for, if applicable) to learn what you’ll owe in estimated taxes each quarter. The equation looks like this: Net earnings for income period × self-employment tax = estimated tax payment

Your self-employment tax: The current self-employment tax rate is 15.3%. That’s 12.4% for Social Security and 2.9% for Medicare.

Here’s the equation for a sole proprietor’s small business that earned $10,000 during one income period: $10,000 × 15.3% = $1,530

The sole proprietor’s estimated tax payment would be $1,530. Keep in mind that this number can change based on your filing status (i.e. single, married, etc.) and if you’ll need to also include other taxes, like state taxes.

Don’t forget to include your tax deductions, too. These help lower your tax burden. You can include tax write-offs like home office space, transportation, and other businesses expenses.

If you end up overpaying on your estimated taxes each quarter, don’t panic. The IRS will refund your overpayment within 4-6 weeks of your last payment.

Where to pay 

You can make estimated tax payments a few different ways: online, by phone, or by mail.

The easiest way is to pay online using the IRS Direct Pay site. If you’re using a credit or debit card, you can use the IRS’s payment processors here.

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One of the best perks of estimated taxes is getting a head start on tax season. Making estimated tax payments helps you organize your money and get confident in your business finances.

Looking for more financial advice to make tax season a breeze? Subscribe to our newsletter to get the latest financial tips, news, and access to our free Tax Day Checklist.

Keywords:

  • Estimated tax payments

  • Estimated taxes

  • Small business

  • Tax season

  • Fiscal year

  • Business finances

  • Financial advice

Sources:

Karrissa Jyles
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