Estimated taxes

Estimated taxes are periodic payments individuals and businesses make to the IRS — and usually their state — through the year on income that isn’t subject to withholding. The U.S. tax system is pay-as-you-go: tax is meant to be paid as income is earned, not in a single lump at filing. Employees meet that through paycheck withholding; the self-employed, business owners, and anyone with significant untaxed income (profit distributions, interest, gains) generally meet it by making estimated payments instead.

They are generally paid quarterly, on a schedule the IRS sets each year. Underpaying — paying too little, or too late — can trigger an IRS underpayment penalty even if the full balance is settled at filing, which is why estimating accurately through the year matters.

An estimate is only as good as the numbers behind it. If the books are behind, unreconciled, or miscategorized, the income figure your CPA or EA works from is a guess — and a guess that’s too low invites a penalty, while one that’s too high ties up cash you needed. Current, reconciled books let the person calculating your estimate work from real profit, not a hopeful number.

TechBrot keeps the books accurate and current so your CPA or EA can calculate your estimated payments from real figures, and so a quarterly profit picture is there when the decision is due. We do the bookkeeping; the licensed tax professional does the math and the filing. See our bookkeeping and advisory work for how the foundation is kept.

They are easy to confuse but flow in different directions. Estimated taxes are paid by you (or your business) to the IRS and state on your own untaxed income. Payroll-tax deposits are made by an employer remitting tax that was withheld from employees’ wages, on the employees’ behalf. One covers the owner’s income; the other is the employer passing along money it held in trust.

This page is educational only. The amount you owe, the safe-harbor rules that protect against penalties, and the actual filing are your CPA’s or EA’s — TechBrot is an independent ProAdvisor firm and does not calculate, advise on, or file taxes.