If you’re self-employed, you likely enjoy the freedom and flexibility of being your own boss. However, one of the biggest responsibilities that comes with self-employment is managing your taxes. Unlike traditional employees who have taxes withheld from their paychecks, self-employed professionals are responsible for making estimated tax payments throughout the year.
Shammas Tax knows that many freelancers, independent contractors, and small business owners struggle with the concept of quarterly taxes, often facing penalties for underpayment or failing to set aside enough money. The good news is that once you understand the system, making these payments becomes a routine part of your business operations.
This guide will break down everything you need to know about quarterly taxes, including how to calculate them, when they are due, and tips for staying organized.
What Are Quarterly Taxes?
Quarterly taxes, also known as estimated tax payments, are periodic payments made to the IRS and state tax agencies on income that is not subject to automatic withholding. This applies to self-employed individuals, freelancers, independent contractors, and business owners who receive income outside of traditional employment.
The IRS requires estimated tax payments because self-employed professionals do not have an employer automatically withholding taxes from their earnings. Instead, they must estimate how much they owe and pay in installments throughout the year.
Who Needs to Pay Quarterly Taxes?
If you expect to owe more than $1,000 in taxes for the year after subtracting tax credits and withholding, the IRS requires you to make quarterly payments. This generally applies to:
- Freelancers and independent contractors who work on a project-by-project basis.
- Small business owners who operate sole proprietorships or single-member LLCs.
- Gig economy workers such as rideshare drivers and online sellers.
- Self-employed professionals such as consultants, photographers, or graphic designers.
If you also receive W-2 income from an employer, you may be able to adjust your withholdings to cover your tax obligations rather than making quarterly payments. However, most fully self-employed individuals must make these payments to avoid IRS penalties.
How to Calculate Your Quarterly Taxes
Quarterly tax payments include both income tax and self-employment tax. Self-employment tax covers Social Security and Medicare taxes, which are normally split between employers and employees. As a self-employed individual, you are responsible for both portions, which amounts to 15.3% of your net earnings.
To estimate your quarterly tax payments, follow these steps:
- Estimate Your Annual Income – Calculate how much you expect to earn for the year from self-employment.
- Determine Your Deductions – Subtract any business expenses and applicable deductions to determine your taxable income.
- Calculate Self-Employment Tax – Multiply your net earnings by 15.3% to cover Social Security and Medicare taxes.
- Estimate Income Tax – Use IRS tax brackets to determine your federal income tax. You may also owe state income taxes depending on where you live.
- Divide by Four – Take your estimated total tax liability and divide it into four equal payments to make throughout the year.
For those who prefer a simpler approach, the IRS provides Form 1040-ES, which includes a worksheet to help calculate estimated payments. Many self-employed professionals also use accounting software or work with a tax expert to ensure they are paying the correct amount.
When Are Quarterly Taxes Due?
Quarterly taxes are due four times a year, based on the following schedule:
- April 15 – Covers income earned from January 1 to March 31
- June 15 – Covers income earned from April 1 to May 31
- September 15 – Covers income earned from June 1 to August 31
- January 15 (of the following year) – Covers income earned from September 1 to December 31
If the due date falls on a weekend or holiday, the deadline is extended to the next business day.
Failure to pay estimated taxes on time can result in IRS penalties and interest charges. Even if you file your annual tax return on time, missing quarterly payments can lead to unexpected costs.
How to Pay Quarterly Taxes
There are several ways to pay your estimated tax payments:
- Online – The IRS offers an Electronic Federal Tax Payment System (EFTPS) where you can schedule and make payments securely.
- Direct Pay – You can make a direct payment from your bank account through the IRS Direct Pay
- Credit or Debit Card – Some taxpayers prefer to pay using a credit or debit card, though processing fees may apply.
- Mailing a Check – You can also mail a check or money order with Form 1040-ES, though online payments are recommended for faster processing.
Most state tax agencies also provide online payment portals for state-level estimated taxes.
How to Avoid Underpayment Penalties
The IRS imposes penalties on individuals who underpay their estimated taxes throughout the year. To avoid penalties:
- Pay at least 90% of your total tax liability for the current year or 100% of your prior year’s tax liability (110% for high earners).
- Make payments on time to prevent interest charges from accumulating.
- Adjust your estimated payments if your income fluctuates throughout the year.
If you overpay, you will receive a refund when you file your tax return, but it’s better to estimate payments accurately to avoid overpaying unnecessarily.
Keeping Track of Expenses and Deductions
One of the best ways to reduce your quarterly tax burden is to track your business expenses and take advantage of deductions. Common deductions for self-employed professionals include:
- Home office expenses (if you work from home).
- Office supplies and equipment such as laptops, printers, and software.
- Business travel and vehicle expenses if you use a car for work.
- Marketing and advertising costs such as website hosting and online ads.
- Professional services including accountants, legal fees, and consultants.
Keeping accurate records throughout the year will ensure you can claim all eligible deductions when filing your tax return.
Work with a Tax Professional for Peace of Mind
If handling quarterly taxes feels overwhelming, working with a tax professional can save you time and help you maximize deductions. A tax expert can:
- Calculate estimated tax payments accurately.
- Identify deductions you may have missed.
- Ensure compliance with IRS rules and state tax regulations.
- Provide personalized tax planning strategies.
Shammas Tax helps self-employed professionals navigate the complexities of estimated taxes and business deductions, ensuring they meet IRS requirements while minimizing their tax burden.
Final Thoughts
Quarterly taxes are an essential part of managing self-employment income, but they don’t have to be stressful. By understanding your tax obligations, staying on top of deadlines, and keeping accurate records, you can ensure that your tax payments are manageable and predictable.
Planning ahead, setting aside money for taxes, and using deductions to lower your tax liability will keep you in good standing with the IRS and help you avoid last-minute tax surprises. If you need assistance, seeking help from a tax professional can make the process even easier.
Taking control of your quarterly taxes ensures that you stay compliant while keeping more of your hard-earned money in your pocket.
