When you work a regular job, taxes come out of every paycheck. When you run a business, that job is yours — and missing it leads to penalties. Here's how quarterly estimated taxes work, in plain English.
Who Has to Pay Estimated Taxes?
Generally, if you expect to owe $1,000 or more in tax for the year beyond any withholding — which describes most self-employed people and business owners — you're expected to make quarterly estimated payments.
The Deadlines
Estimated taxes are due roughly four times a year — in April, June, September, and January. They don't line up with neat calendar quarters, which trips a lot of people up. Mark them in advance.
How Much Should You Pay?
A common safe-harbor approach is to pay either 90% of this year's tax or 100–110% of last year's tax, whichever is smaller, spread across the four payments. A simpler habit: set aside a fixed percentage of every dollar of profit (many owners use 25–30%) so the money is always there.
The Underpayment Penalty
If you pay too little or too late, the IRS charges an underpayment penalty — essentially interest on what you should have paid. It's avoidable, but only if you plan ahead.
Don't Forget New York
New York State (and sometimes NYC) also expects estimated payments. It's easy to budget for the IRS and forget the state — then get a second surprise bill.
Make It Automatic
The owners who never stress about estimated taxes are the ones who set aside a percentage of every deposit and pay on schedule. Li CPA Group helps NYC business owners calculate the right amount and stay penalty-free year-round.