Do you know when your next quarterly tax payment is due? And do you know where the money is coming from?
If you came from a corporate job, taxes used to come out of your paycheck automatically. Your employer handled your payroll taxes, your income taxes, all of it. As a small business owner, a self-employed freelancer, or a 1099 contractor, that part is now on you, and the tax code isn’t exactly easy to figure out.
Many small business owners wait until a payment is due and then panic trying to come up with the money. Let’s walk through three steps for saving (in advance!) for self-employed quarterly taxes, even when your income changes from month to month, so a payment becomes an easy transfer instead of an all-out scramble.
Do You Have to Pay Self-Employed Quarterly Taxes?
The IRS expects you to make estimated quarterly tax payments if you expect to owe $1,000 or more for the year (read more about the IRS’s overview of estimated taxes here).
Skipping those payments can mean penalties, interest, and a big bill at tax time that catches you off guard. Nobody wants that!
If you live in a state that has income taxes, check with your state too. I live in California, where the Franchise Tax Board is the IRS equivalent, and they expect their share quarterly, too.
When Are Quarterly Taxes Due? (It’s Not Every 3 Months)
Even though they’re called quarterly, the payments aren’t spaced three months apart. Confusing, I know! The IRS splits the year into four payment periods, and each one has its own due date.
| Income earned | Payment due |
|---|---|
| Jan 1 to Mar 31 | April 15 |
| Apr 1 to May 31 | June 15 |
| Jun 1 to Aug 31 | Sept. 15 |
| Sep 1 to Dec 31 | Jan. 15 of the next year |
See how the periods are different lengths? The first is 3 months, the second is only 2, the third is 3, and the last one is 4. That’s why the payments don’t land every three months.
If a due date falls on a Saturday, Sunday, or federal holiday, you have until the next business day. Your state may have its own dates, so check with them directly.
These dates come from IRS Publication 505. Your tax advisor can confirm the dates for your situation.
Saving for Quarterly Taxes When Your Income Changes Every Month
Your business income probably isn’t the same amount every month. That makes it challenging to know how much to set aside, whether your business is brand new or you’ve been doing this for years.
And there’s no handy guidebook given to you the day you start your business (although that would be pretty cool!).
It’s easy to overlook quarterly taxes early on, when you don’t even know you’re supposed to be paying them, let alone how much.
So I get it. The only thing I can promise is that the amount you estimate you need to pay won’t be perfect.
If it is, you’re probably lucky. The goal is not for it to be perfect. It’s for it to be close enough.
You pay quarterly to lower the risk of penalties and interest, and you want to get as close to owing $0 as you can, and as close to getting $0 back as you can.
When you file your tax return, you find out how your estimate did, and you pay or receive the difference. If you don’t know how much your business brings in and spends each month, a business budget is a great place to start. This will make it easier for your tax advisor to estimate how much you’ll owe.
Okay, so you know you need to pay quarterly. Now the big question is, how do you actually go about making sure you have the funds to pay when the time comes?
The way to make this easier is to save throughout the quarter instead of scrambling when a payment is due. Waiting until the day before is very stressful. Zero out of 10, do not recommend.
Here are the steps I go through with my clients to make sure they’re planning ahead for quarterly tax payments as a small business owner.
Step 1: Open a Separate Tax Savings Account
Ideally, find one with no minimum balance and no monthly fees, because fees can eat into your savings.
It should also be high-yield, which means you earn some interest on the money while it sits there.
Some people find it easier to use a completely separate bank. Out of sight, out of mind.
Step 2: Decide How Much to Set Aside for Quarterly Taxes
Next, decide on a regular percentage of your revenue to move into that account.
If you’re wondering how much to set aside for taxes when you’re self-employed, I recommend asking your CPA or tax preparer to help you figure out the right number for you.
If you have no idea and a tax advisor isn’t in your budget right now, pick a starting percentage of revenue.
If you’re not sure, start with 20% of your revenue. For every $1,000 that comes in, you’d move $200 into your tax savings account.
Remember, that is not your money! It’s the IRS’s money, or your state tax authority’s money, so don’t touch it!
If your revenue and expenses are fairly consistent compared to last year, there’s a shortcut. You can contribute based on your total tax liability from last year.
That’s the total you owed, including your quarterly payments, not just what you paid when you filed. You’ll find it on your tax return where it says tax liability.
For example, if you owed $10,000 in total last year, you’d divide it by four and set aside $2,500 each quarter.
If your income changes from month to month, last year’s total may not match this year, so treat it as a starting point.
Step 3: Make Regular Contributions to Your Tax Savings Account
Knowing you should make contributions is one thing. Actually doing it is the important part.
If you can set up autopay, or an automatic transfer from your main account into your tax account, that’s great, because you’re not deciding every single time. Automating it is a one-time action with a lasting payoff.
The more often you do it, whether it’s automatic or manual, the more it becomes a habit and the easier it gets.
I had a client who set up a separate tax savings account and makes contributions every week. Now when it’s time to pay quarterly taxes, she knows exactly where the money is.
She sets up the transfer on the IRS’s website, and it’s a little admin task instead of an all-out panic about where she’s going to find thousands of dollars.
Keeping it separate means she isn’t tempted to spend it when other things come up. Out of sight, out of mind.
If you want more support with implementing these steps, you can learn more about financial coaching for small business owners. I help my clients save for taxes, pay themselves consistently, and manage business expenses.
Quick Answers About Self-Employed Quarterly Taxes
How much should I set aside for quarterly taxes?
If you’re not sure, start with 20% of your revenue, and ask your CPA or tax preparer for the right number for you.
How do I pay quarterly taxes if I’m self-employed?
You can make the payment on the IRS’s website, and your state tax authority takes payments for your state taxes. If you’ve been saving into a separate account, it’s a transfer instead of a scramble. Check with your tax advisor about the exact amounts and timing for your situation.
Should I pay quarterly taxes as a 1099 contractor?
The IRS expects estimated payments if you expect to owe $1,000 or more for the year. Your tax advisor can tell you whether that applies to you.
Get Started Saving for Quarterly Taxes This Week
Saving for quarterly taxes comes down to three steps, even if your income is inconsistent and changing month to month.
Open a separate tax savings account.
Come up with a consistent percentage.
Contribute it on a consistent schedule, automated if possible.
And don’t touch it unless you’re paying the IRS or your state’s tax authority!
Education is great, but you need to put it to use for it to help. It’s like buying a treadmill and then looking at it sitting in the corner.
So here’s my challenge: pick one thing you learned here and put it in place over the next week. Maybe that’s step one, opening the account.
I’ll award you an extra gold star if you block time on your calendar to do it or put it on your to-do list! At least for me, if it’s not written down, I’ll forget it.
This article is for educational purposes only and is not tax advice. Always check with your own tax advisor about your specific situation.
When you own a business, nobody withholds taxes for you anymore. Here are three steps for saving ahead, so a quarterly payment is a transfer instead of a scramble.