What Small Business Owners Need to Know About Estimated Taxes
The quick version
If you expect to owe at least $1,000 in federal income tax for the year after withholding/credits, you may need to make quarterly estimated payments. Paying in as you go helps you avoid an underpayment penalty and a scary April surprise.
Who typically needs to pay estimates?
Sole proprietors and single-member LLCs
Partners in partnerships and S-corp shareholders (pass-through income lands on your personal return)
Consultants, freelancers, real-estate agents, and anyone with little/no tax withheld from paychecks
On payroll (W-2)? You can often increase withholding instead of making separate estimate payments.
Two easy ways to calculate
Option A: Prior-year “safe harbor” (simple + penalty-smart)
Base your quarterly payments on last year’s total tax, spread across four payments. Many owners choose this for predictability.
Option B: Pay as you profit (more exact to this year)
Each month, set aside a fixed % of profit (many owners use 25–30% to cover federal/state/self-employment; your % may vary). Move it to a dedicated tax savings account. When the quarter ends, send the payment from that account.
Common pitfalls I see
Waiting until quarter-end to look at numbers
Forgetting state estimates (many states require them)
Ignoring self-employment tax on net profit
Not adjusting mid-year when income jumps
Treating “profit” like “cash in bank” (not the same!)
A simple monthly system that works
Reconcile every account monthly.
Run a year-to-date Profit & Loss.
Apply your target % and transfer that amount to a separate tax savings account.
Send the quarterly payment by the deadline (calendar reminders help!).
What about fluctuating income?
If your income swings seasonally, combine methods: use the prior-year safe harbor as a baseline, then do quick quarterly true-ups based on your actual year-to-date profit.
Receipts, records, and sanity
You don’t need a shoebox of chaos. Keep your books current, label owner draws vs. expenses correctly, and make sure your Chart of Accounts reflects how you operate. Clean books = cleaner estimates.
Quick state note
Most states piggyback the idea of paying as you go. We’ll double-check your state’s rules and weave those into your calendar so nothing gets missed.
Want a quick sanity check?
In a 45-minute working session, I’ll:
Review your YTD books and estimated-tax approach
Help you pick a method and set your % target
Add due-date reminders so this runs on autopilot
Ready when you are: sara@dunhambookkeepingservices.com • Book a time
