Quarterly Estimated Taxes Without the Surprise Bill

Short Answer: Set aside a fixed share of every month's profit, not of what you draw: about 23% covers federal income and self-employment tax on $114,000 of profit for a single filer, and 25–35% is common once a state income tax is added. Pay it in four estimates, due April 15, June 15 and September 15, 2026, and January 15, 2027. Paying 100% of last year's total tax on time (110% above $150,000 of income) keeps you clear of the underpayment penalty.

An employee's taxes are withheld from each paycheck, so April is a formality. An owner's taxes aren't withheld from anything. The IRS still expects them during the year, in four payments called estimated taxes, and charges a penalty on any quarter that comes up short, even if you pay everything by April.

Who Has to Pay Estimated Taxes?

Anyone who expects to owe $1,000 or more when they file. For an owner of a sole proprietorship or a single-member LLC that's nearly everyone with a profitable year, because no one withholds tax from business profit or owner's draws.

The estimates cover both taxes on your profit: income tax and self-employment tax.

How Much Should I Set Aside?

Work it out once from a full year's numbers, then set aside that share of profit every month.

Take a hypothetical landscaping company, Greenline Landscaping: one owner, a crew of four, about $520,000 a year in revenue, run as a single-member LLC taxed the default way. It makes $114,000 of profit before the owner is paid. The owner files single in a state with no income tax.

So Greenline's owner moves about $23 of every $100 of profit into a separate tax account. A state income tax, a higher income or a spouse's earnings push that share up, which is why 25–35% is the common range.

The base is profit, not draws. You're taxed on everything the business earns, whether you take it home or leave it in the account. An owner who sets aside 23% of a $4,000 draw in a month the business earned $10,000 puts away $920 against roughly $2,300 owed.

When Are the 2026 Payments Due?

The periods aren't equal quarters: the second covers two months and the fourth covers four. A due date that lands on a weekend or holiday moves to the next business day.

How Do I Avoid the Penalty?

You're safe from the underpayment penalty if your payments, made on time, add up to at least one of these:

• 90% of this year's tax, or
• 100% of last year's total tax, or 110% if last year's adjusted gross income was over $150,000.

The prior-year rule is the one owners can actually plan around, because last year's number is already known. If Greenline's owner owed $26,633 last year, four payments of about $6,660 are enough, whatever this year turns out to be. Their adjusted gross income was about $106,000, so the 100% version applies. Any extra tax is due in April with no penalty.

What If My Business Is Seasonal?

Greenline earns most of its revenue from April to October. Here's how its revenue falls across the four payment periods:

The prior-year rule asks for four equal payments of about $6,660. The first is due April 15, after the three slowest months of the year, and before most of the season's cash has arrived. If the tax account was drained over the winter, that payment comes out of operating cash.

Two ways to handle it:

• Keep the equal payments and fund them from last season. Leave the set-aside from the previous summer in the tax account through the winter, so the April and June payments are already there.
• Pay as you earn with the annualized method. The IRS lets you base each payment on the income you actually earned in that period (Form 2210, Schedule AI). Lighter payments in the slow months, heavier ones in summer. It takes more calculation, so many owners hand it to their tax preparer.

What to Look For

• The tax account against the next payment. Two weeks before each due date, the balance should already cover it. If it doesn't, the set-aside share is too low.
• Your set-aside share against last year's actual rate. Divide last year's total tax by last year's profit. If you set aside less than that, you're borrowing from next April.
• A profit jump. If this year's profit runs well ahead of last year's, the prior-year rule still protects you from the penalty, but the April balance will be large. Raise the set-aside to match, even while the payments stay the same.

What a Finance Consultant Would Do Next

A consultant working with Greenline's owner would size the set-aside from next year's expected profit rather than last year's, choose between equal and annualized payments against the season's cash, and make sure the April payment doesn't collide with the spring ramp-up in crew wages and materials.

That analysis is what Occam's Model runs on your own numbers. It models the taxes your business profit carries under the way it's taxed, walks your numbers from revenue down to cash, and builds a 24-month forecast that shows how long your cash lasts. When you need extra help, an expert can review it with you.

Common Questions

What percentage should I set aside for taxes if I'm self-employed?
Your own total rate on profit. For a single filer with $114,000 of profit and no state income tax it's about 23%. With a state income tax or higher income, 25–35% is common.

What happens if I miss an estimated payment?
The IRS charges a penalty that works like interest on the amount that was late, for the time it was late. Pay as soon as you can; the cost grows with time.

Do I need to pay estimated taxes in my first year?
If you expect to owe $1,000 or more, yes. With no business last year, the prior-year rule is based on last year's total tax as an employee, which is often small, so that version can be easy to meet.

Can I just pay everything in April?
You can, but you'll owe the penalty on each quarter you underpaid, even if the April payment covers the full year.