Two coworkers sitting at the bar of their restaurant going over paperwork.
Sole proprietors, partners, and S corporation shareholders have to make estimated tax payments if they expect to owe $1,000 or more on their tax return. — Getty Images/shapecharge

Almost everyone dreads the March-April tax season, just before the federal tax deadline of April 15. Many business owners scramble to put together their tax return, calculate deductions, and ensure they have the funds available to pay the IRS.

The IRS realizes that filing taxes can be stressful, and in an effort to alleviate the financial burden, the federal government requires businesses to pay as they go with estimated taxes throughout the year. Estimated tax payments require business owners to split their tax payments by quarter. Here’s what you need to know about estimated tax payments and your obligations throughout the tax year.

[Read more: A Complete Guide to Filing Your Business Taxes]

What are estimated tax payments?

Estimated tax payments are taxes that must be paid as your business earns and receives income during the year. Sole proprietors, partners, and S corporation shareholders have to make estimated tax payments if they expect to owe $1,000 or more on their tax return; the same is true for corporations that expect to owe $500 or more. Estimated tax payments are due quarterly according to the following schedule:

  • Quarter 1, January 1 to March 31: Payment is due by April 15.
  • Quarter 2, April 1 to May 31: Payment is due by June 15.
  • Quarter 3, June 1 to August 31: Payment is due by September 15.
  • Quarter 4, September 1 to December 31: Payment is due by January 15 of the following year.

To make your estimated tax payment, you will file either Form 1040-ES (for sole proprietors, partners, and S corp shareholders) or Form 1120-W (for corporations).

Don’t forget state taxes

Many states also require that you file quarterly estimated payments in addition to your federal taxes. “The types of taxes you may owe include state and local income taxes, sales and use taxes, as well as employment taxes, if you have employees,” wrote Bank of America.

To understand if you are subject to state estimated taxes, check out this resource from TaxSlayer.

If your income is relatively stable, calculate the year’s worth of income and deductions, determine the total amount of taxes you will owe, and divide that amount into four even payments.

How to calculate estimated tax payments

How much you pay each quarter depends on your income. Broadly speaking, there are two ways to calculate your estimated quarterly tax payments.

The first approach applies to businesses that receive income predictably or consistently over the course of the year. If your income is relatively stable, calculate the year’s worth of income and deductions, determine the total amount of taxes you will owe, and divide that amount into four even payments.

The second approach applies to seasonal businesses or freelancers whose income may vary throughout the year. Calculate what you owe each quarter based on what you’ve actually earned and spent during that year.

It’s possible that your estimate will be slightly off, meaning you will underpay or overpay on a quarterly payment. Generally, you can correct this discrepancy on the next quarter’s payment without any issues, according to Bank of America.

[Read more: Everything You Need to Know About Your Seasonal Business Taxes]

Can I skip estimated taxes?

In short: no. It’s a bad idea to skip estimated tax payments, as you may incur penalties. “Skipping an estimated tax payment is only a good idea if you’ve already paid enough in estimated taxes with your previous payments,” wrote Gusto.

You may inadvertently forget a quarterly deadline; if that happens, make your quarterly payment as soon as possible. If you believe you will earn less than $1,000 ($500 for corporations) or you have overpaid the previous quarter, you may be able to skip a quarterly estimated tax payment. However, you should consult with an expert before making this decision.

How to pay quarterly estimated taxes

There are a few ways to submit quarterly tax payments. You can choose from any of the following options, according to the Small Business Administration:

  • Sign up for the Electronic Federal Tax Payment System, or EFTPS.
  • Pay online via the IRS at www.irs.gov/payments.
  • Pay using debit or credit card.
  • Remit a check or money order using an estimated tax payment voucher.

Visit the IRS payment site to view all your payment options.

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Published July 15, 2022