$ What are estimated taxes? $ 

When you work for someone else as a W2 employee, you expect to have taxes taken out of your paycheck. You know that when you file your year-end taxes in April, you will find out then if you had too much or not enough taken out. 

Estimated taxes are the same idea. But for your business profit you don't have someone else to take that money out for you, so you have to do it. Rather than doing this every other week, the federal and state governments have a schedule of 4 payments per year, typically falling on April 15, June 15, September 15 and January 15.

Whatever isn't paid by January 15 gets paid with your tax return filed in April. If you overpaid estimated taxes, you will get a refund when you file your April tax return. 

$ Do I actually have to pay estimated tax? $ 

Usually, yes. In the US we have a "pay as you go" tax system which is why taxes get withheld from employee paychecks. But it's not only employees who pay tax during the year. The exception is when your business has no or very little profit. You only pay estimated tax to the extent you have taxable profit. The IRS expects estimated taxes to be paid when your tax due is $1,000 or more, which is usually around the point where your profit is $4,000 to $5,000 for the year. 

Estimated tax payments are not only for small business owners. Retired people who do not have tax withheld from retirement withdrawals are expected to make estimated tax payments. W2 employees are expected to make additional estimated tax payments if their employers do not withhold enough tax from their paycheck.

$ When are estimated taxes due $ 

Estimated tax payments for the IRS are not due exactly on the quarters. The dates are: 

April 15 - for profit earned January - March
June 15 - for profit earned April & May
September 15 - for profit earned June - August
January 15 after the year ends - for profit earned September - December

When the 15th falls on a weekend or federal holiday, the date moves to the next business day. Most states follow the federal due dates but check your state to make sure.

$ What if it's my first year in business $ 

You still owe estimated taxes even if it's your first year in business. You may hear that you do not, but this is a myth. 

You may not get a penalty for failing to pay if you had no income, none from a W2 job or other income sources in the prior year. This is because your penalty is based in part on your prior year personal tax due, so no tax last year = no estimated tax penalty this year. However, you still owe the tax and it's better to pay as you go than to get an overwhelming tax bill in April. 

$ Can I guess the amount I will owe? $ 

Yes, but you do not have to guess.

Guessing is fine in that paying something is better than paying nothing. However, individual tax rates vary so much, and this makes guessing often inaccurate. As a CPA I see IRS tax rates that range from a low of 16% up to 32% or more. State tax rates can range from 0% for states that have no tax up to 13%. 

You can use the vouchers that come with your prior year tax return, however, these are based on last years taxes which doesn't work if you have a new business, if your income is lower than before or if your income is increasing drastically. 

The Simple Profit membership not only provides a spreadsheet and tutorial for calculating estimated taxes, but also tutorials on how to read your tax return, how and where to make estimated tax payments and help in making decisions impacted by taxes such as "Will an S-Corp save me tax?" and "If I quit my job and go into business full time, how much do I need to make to have the same or more income after tax?

$ What if I have more questions $ 

It's common to have lots and lots of questions about estimated taxes. 

Simple Profit has many ways to learn more, get education, answers and support. See the list of free resources and low cost membership resources related to estimated taxes below.