Quarterly Estimated Taxes: The Safe Harbor That Keeps the IRS Penalty Away

Quarterly estimated taxes safe harbor guide by Robert Allen Bautista, Kansas City tax preparerIf you're self-employed, nobody withholds tax from your pay. The IRS still wants it during the year, not all at once in April. That's what quarterly estimated payments are for.

The four standard due dates are April 15, June 15, September 15, and January 15 of the next year. If one lands on a weekend or holiday, it moves to the next business day.

The part most people never hear about is the safe harbor. You generally avoid the underpayment penalty if your withholding and estimates add up to at least the smaller of:

  • 90% of this year's tax, or
  • 100% of last year's tax (110% if last year's AGI was over $150,000, or $75,000 married filing separately).

The prior-year option is the secret. You can pay based on a number you already know, even in a year when business booms. You may still owe a balance in April, but without the penalty.

Two more tips: withholding from a W-2 job counts as paid evenly through the year, and the penalty is figured quarter by quarter, so skipping one and "catching up" later still costs you.

Full guide with a worked example and the uneven-income method: Quarterly Estimated Taxes and the Safe Harbor That Prevents Penalties.

Robert Allen Bautista is a Kansas City tax preparer and accountant, PwC alum, and author of The Small Business Tax Code, Unlocked. Sources: IRS Publication 505, Form 2210 instructions. General information, not advice for your situation.

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