Quarterly Estimated Taxes: How to Stop the Surprise Tax Bill
(Episode 14 – Savvy or Surrender Podcast)

If you’re at the end of the year staring at your numbers thinking,

“I have no idea what my tax bill is going to be… and I haven’t paid a dime in estimates…”

this is for you.

In Episode 14 of The Savvy or Surrender Podcast, I break down how quarterly estimated taxes actually work, who needs to pay them, how to use the IRS Safe Harbor Rule, and how to avoid getting hammered with surprise tax bills and penalties—especially if you’re a contractor or small business owner.

This blog is the written version of that episode, so you can reference it anytime without having to rewind the podcast 17 times.

What Are Quarterly Estimated Taxes (and Why Does the IRS Love Them So Much)?

If you’re a business owner, especially a contractor or self-employed pro, chances are no one is withholding taxes for you like a traditional W-2 job.

The IRS, however, still wants its money throughout the year, not just on April 15th (or October if you extend).

Quarterly estimated taxes are prepayments of the taxes you’ll owe on your income for the year. When you pay estimates to the IRS, you’re generally covering:

• Federal income tax (what would show up as Box 2 on a W-2 if you were an employee)

• Self-employment tax (15.3%) for sole proprietors and single-member LLCs

  • This covers Social Security and Medicare

• State income tax, if your state has one (paid separately to the state)

You can make these payments online (my favorite) or with paper vouchers and a check. However you do it, the key is: do it.

One of the biggest mistakes I see:
Business owners remember the IRS… and completely forget about the state.
Then boom—thousands owed to the state on top of the federal bill.

Who Has to Pay Quarterly Estimated Taxes?

You’re generally required to pay estimated taxes if:

1. You expect to owe $1,000 or more in taxes when you file, AND

2. Your withholding (from any W-2 jobs) won’t cover it

For most contractors and profitable business owners, that $1,000 threshold gets hit very quickly.

The pattern I see all the time:

• Busy season hits

• Cash finally comes in

• You use that profit to:

  • Catch up old bills

  • Buy stuff you’ve been putting off

  • Maybe take a draw or two

• No money gets set aside for taxes

Then April (or October) rolls around and… surprise.

How Much Should You Be Paying?

The IRS Safe Harbor Rule (Your Best Friend in a Crunch)

The IRS has a built-in “easy button” called the Safe Harbor Rule. This rule tells you what you need to pay during the year to avoid penalties and interest for underpaying estimates.

You’re in the safe zone if you pay:

• 90% of this year’s tax, OR

• 100% of last year’s total tax if your income is $150,000 or less

• 110% of last year’s total tax if your income is over $150,000

A couple of examples:

Example 1: Based on This Year (90% Rule)

Let’s say your projected numbers for this year are:

• Profit: $100,000

• Combined tax rate (income + self-employment): 30%

Estimated total tax for the year:
$100,000 × 30% = $30,000

To avoid penalties using the 90% rule:
$30,000 × 90% = $27,000

Spread over four quarters:
$27,000 ÷ 4 ≈ $6,750 per quarter

Example 2: Based on Last Year (Safe Harbor)

Let’s say last year your total tax (from your return) was $20,000.

• If your income was ≤ $150,000 last year:

  • Pay $20,000 ÷ 4 = $5,000 per quarter

• If your income was > $150,000 last year:

  • Safe harbor is 110% of last year’s tax

  • $20,000 × 110% = $22,000

  • $22,000 ÷ 4 = $5,500 per quarter

The beauty of the Safe Harbor rule is this:

Even if you double your income this year,
if you’ve met Safe Harbor, you may still owe tax at filing…
but you won’t get hit with underpayment penalties.

The Simple Method: Profit × 30%

If all of that makes your eyes glaze over, here’s the simple way:

1. At the end of each quarter, look at your profit (not revenue)

2. Multiply that profit by 30% (a reasonable starting point for many small businesses)

3. Send that amount in as your estimated tax

Example:

• Quarterly profit: $50,000

• $50,000 × 30% = $15,000

• You send $15,000 as your quarterly estimate

Is it perfect? No. Is it far better than guessing (or ignoring it)? Absolutely.

The Most Common Mistake: Waiting Until Tax Time

Recently, I met with a contractor who:

• Didn’t make any estimated payments in 2023

• Started their business, had a good year, but used all the cash to:

  • Pay down old debts

  • Cover current bills

• Then repeated the pattern in 2024 while trying to catch up on 2023

By March 2025, they discovered:

• They owed over $18,000 in taxes

• Plus about $5,000 in penalties

Their first question:

“How do we get out of these penalties?”

Penalty Abatement: Helpful, But Not a Strategy

The IRS does offer First-Time Penalty Abatement in some cases. You or your tax pro can:

• Call the IRS

• Ask if you qualify for penalty relief

• If approved, they remove some or all of the penalties

This is a tool, not a long-term plan. You don’t want to depend on penalty abatement every couple of years. Use it when needed, then fix the underlying problem:

Start paying consistent quarterly estimates.

Mistake #2: Not Setting Money Aside Weekly

How Profit First Solves This

This is where Profit First shines.

With Profit First, you set up multiple bank accounts, and one of them is a dedicated Tax Account. Each week (or twice a month), you move a percentage of your income into that account.

By the time quarterly taxes are due:

• The money is already sitting there

• You’re not scrambling

• You’re not robbing Peter (payroll) to pay Paul (IRS)

If you want to see how “profitable” your business really is, you can take my quiz and get free core chapters of Profit First:
savvytaxstrategies.com/quiz

What If You’re an S Corp Owner?

Short answer: Yes, you still have to deal with quarterly taxes—just differently.

If you’re an S Corp and set up correctly:

1. You should be on payroll.

   • You get a W-2 from your business

   • Taxes are withheld from those wages (like a normal job)

2. Your S Corp files its own corporate return, but generally doesn’t pay its own federal tax (it passes through to you personally).

3. Your distributions (owner draws) are usually not subject to Social Security and Medicare, but they are still subject to income tax.

So:

• Payroll withholding helps cover part of your tax bill

• But if you take large distributions, you may still need to pay estimates on those

Example:

• You pull $2,000/week from the business (12 weeks in a quarter = $24,000 total)

• You decide a reasonable salary is $48,000/year

  • So you run $12,000 as payroll for the quarter

  • The other $12,000 is distributions

That $12,000 in distributions still needs income tax paid on it. If your effective rate is 15%, that’s:

• $12,000 × 15% = $1,800 quarterly estimate to the IRS

• Plus your state estimate if applicable

A good S Corp setup + solid payroll + consistent estimates = real tax savings and fewer surprises.

Quarterly Estimated Tax Due Dates (They’re Weird on Purpose)

Here are the standard due dates for individual estimated taxes:

• April 15 – for income from Jan 1 – Mar 31

• June 15 – for income from Apr 1 – May 31

• September 15 – for income from Jun 1 – Aug 31

• January 15 (following year) – for income from Sep 1 – Dec 31

Yes, the periods are uneven. No, the IRS did not ask for our opinion.

The key is to put these dates in your calendar and have a process to:

• Review your profit

• Calculate your payment

• Move money from your tax account

• Pay electronically

What If You’re Behind?

If you’re already behind on estimates, you’ve got options:

1. Catch up using Safe Harbor

   • Look at last year’s total tax

   • Aim to hit 100% (or 110% if over $150k income)

   • Spread what’s left over the remaining quarters

2. Make a bigger Q4 payment (January 15)

   • Not ideal, but better than ignoring it

   • Try to get as close to Safe Harbor as possible

3. File early and settle up

   • The longer you wait, the more penalties and interest can build

   • Don’t let it drag out for years

What you don’t want to do is:

• Stick your head in the sand

• Assume “if the IRS hasn’t called, I’m fine”

They might not know everything yet, but once they have W-2s and 1099s on file for you and no return, they can file their own version for you—and the IRS is not generous with deductions.

Bringing It All Together

Quarterly estimated taxes don’t have to be confusing or scary if you:

• Understand what they cover

• Know whether you’re required to pay

• Use the Safe Harbor Rule or a simple profit × 30% formula

• Set up a dedicated tax account (Profit First style)

• Stay ahead of deadlines instead of reacting at tax time

If you’re thinking,

“This is more explanation than I’ve ever gotten from my current tax pro…”

then we should probably talk.

Want Help Getting This Right?

If you’re tired of surprise tax bills and want a clear plan for:

• Quarterly estimates

• Profit First implementation

• S Corp strategy

• Overall tax planning

👉 Go to meetwithsavvy.com and schedule a free discovery call.

We’ll look at your situation and see if it makes sense to work together so you can stop guessing and start being truly Savvy with your taxes.

And if you haven’t listened yet, check out Episode 14 of The Savvy or Surrender Podcast wherever you get your podcasts—or at savvyorsurrender.com.

See you on the next episode, and may your profit be high and your surprise tax bills be… non-existent.