When you work for someone else, tax is withheld from every paycheck. When you work for yourself, nobody withholds anything — so the IRS expects you to pay as you go, generally four times a year.
This is the part of self-employment that surprises people in their first profitable year.
Who generally owes estimated taxes
Broadly, self-employed individuals, sole proprietors, single-member LLC owners, partners, and S-corp shareholders who expect to owe a meaningful amount when they file. The IRS publishes the specific thresholds each year, and state requirements are separate. Your preparer can confirm whether you are in scope.
Related: free bookkeeping tools and templates
What the payment covers
Two things: income tax on your business profit, and self-employment tax, which covers Social Security and Medicare. Self-employment tax is the one owners forget, and it is why a rough 'I'll set aside 15%' often falls short.
How owners usually estimate it
- Percentage of profit — set aside a fixed share of monthly net profit in a separate account. Many owners work from a number their preparer gives them based on last year.
- Safe harbor based on last year's return — paying a set portion of the prior year's tax is a common way to avoid underpayment penalties. The exact percentage depends on income level and current IRS rules.
- Recalculate quarterly — for businesses with uneven income, re-estimating each quarter from actual year-to-date profit avoids overpaying in a slow year.
Whichever approach you use, it depends on an accurate profit number. If your books miss cash income or overstate expenses, the estimate is wrong in both directions.
The deadlines
Federal estimated payments are generally due four times a year, roughly in April, June, September, and the following January, with the exact dates published by the IRS each year and shifted when a date falls on a weekend or holiday. States that collect income tax usually run on a similar schedule. Confirm current-year dates before you rely on them.
The habit that makes this painless
Open a second business savings account. Every month, when you close the books, move your tax percentage of that month's profit into it. Never spend from it. When the quarterly payment comes due, the money is already there and you make a transfer instead of a decision.
Owners who do this describe tax deadlines as boring. That is the goal.
Where the numbers come from
The LedgerFast Year Book keeps cash, app, and bank activity together month by month and includes an educational tax set-aside range. Its year-end packet includes expense category totals you can review with your preparer. It is $99 per tax year.
Disclaimer
This article is general information and not tax, legal, or accounting advice. LedgerFast is not a CPA firm and does not prepare or file tax returns. Thresholds, rates, safe-harbor percentages, and due dates change and depend on your individual circumstances and state — verify current rules with the IRS and a qualified tax professional before making payments. Any estimator output is an estimate only, not a tax calculation. Use of LedgerFast is governed by our Terms of Service.