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If you are self-employed, own an LLC, or take profit out of a business, nobody withholds income tax from what you earn the way an employer does for an employee. The IRS still expects to be paid during the year, as the money comes in. That is what estimated tax payments are: tax paid in installments instead of in one lump in April.
What estimated payments are
An estimated payment is a prepayment of the income tax you expect to owe for the year. For the self-employed it also covers self-employment tax, which is the Social Security and Medicare contribution an employer would otherwise split with you. Instead of one bill when you file, you pay four installments, and the return at the end of the year settles the difference: a refund if you paid too much, a balance if you paid too little.
The IRS form for individuals is Form 1040-ES, which is mostly a worksheet for working out the amount. Many owners never print it; they calculate the figure and pay online through the IRS payment system, which gives a confirmation you should keep with your records.
Who usually needs to make them
The simple test: if you expect to owe a meaningful amount when you file, and no paycheck withholding covers it, estimated payments are probably for you. That describes most sole proprietors, single-member LLC owners, partners in a partnership, and S corporation shareholders on the profit they receive beyond their salary.
There are exceptions. An owner whose spouse has a W-2 job can sometimes increase that withholding instead. An S corporation owner who is paid a salary through payroll already has withholding on that salary and may only need estimates for the rest. The thresholds and the safe-harbor rules that decide whether a penalty applies are set by the IRS and can change, so treat this article as the habit, not the rulebook, and ask about your own numbers.
When they are due
Four times a year, roughly every three months: in April, June, September, and January of the following year. The exact dates are published on the IRS calendar each year and move when they land on a weekend or holiday. Note that the quarters are not equal; the second one is only two months long, which catches people out.
Utah also has a state income tax, so if your business income flows to your personal return, a state estimated payment may be due on a similar schedule. Other states have their own rules.
How much to pay
There are two honest answers, a rough one and a right one.
The rough answer: take last year's total tax from your return and divide by four. If this year looks like last year, that is a reasonable starting point and it keeps you out of trouble while you get organized.
The right answer comes from this year's books. If your records are up to date, you know your profit so far, you can project the rest of the year, and the estimate follows from that. This is one of the reasons monthly bookkeeping matters outside tax season: it turns the estimate from a guess into a calculation, and it lets you lower a payment when a slow quarter comes instead of overpaying.
A monthly habit that makes it painless
The payments hurt when the money has already been spent. The fix is boring and it works: every time money comes in, move a share of it to a separate savings account that you treat as not yours. When the due date arrives, the money is there. What share? It depends on your profit, your other income and your state, so settle it once with someone who has seen your return, then leave it alone until something changes.
If your books are current, you can check the set-aside against the real profit every month and adjust. If they are not, the set-aside is still better than nothing.
What happens if you skip them
If you pay too little during the year, the IRS charges an underpayment penalty. It is calculated like interest on the shortfall for the time it was outstanding, so paying late is cheaper than not paying at all, and a smaller payment on time is better than a perfect payment that never comes. The penalty is a cost, not a crisis; the real damage of skipping estimates is a large bill in April that the business has not planned for.
Where Choice fits
This is the kind of question monthly tax advisory exists for: $50 or $100 a month depending on your annual sales, and the answer when you need it rather than in April. If the books are behind, catch-up bookkeeping comes first, because an estimate built on guesses is just a different guess. And when the return is due, tax preparation starts from the same records, in English or Spanish.
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Questions about this topic
Do I have to pay estimated taxes in my first year of business?
Often yes, if you expect to owe tax when you file and nothing is being withheld. In the first year there is no prior-year figure to copy, so the estimate comes from your actual profit as the year goes on.
Can I pay more often than quarterly?
Yes. The IRS accepts payments at any time; some owners pay monthly because it matches how they set money aside. What matters is that enough has been paid by each quarterly due date.
What if I overpay?
The excess comes back as a refund when you file, or you can apply it to next year's first payment. Overpaying is safe but it is money the business cannot use during the year, which is why current books help.
Written by the team at Choice Business Advisors, a bookkeeping, tax, and advisory firm based in Utah serving small businesses across the United States in English and Spanish.