Tax

Quarterly estimated taxes: how much to actually set aside

You are not penalised for owing tax. You are penalised for not paying it in instalments during the year. The safe harbour means you never have to forecast accurately.

4 min read August 24, 2026

Most first-year business owners discover estimated taxes in April, in the
worst possible way: a tax bill they have not saved for, plus a penalty for not
having paid it in instalments through the year.

The US tax system is pay-as-you-go. If you are not an employee having tax
withheld, the obligation to pay through the year does not disappear — it becomes
yours to manage.

You are not penalised for owing tax. You are penalised for not having paid it on time, in instalments, during the year you earned it.

The safe-harbour rule, which is the useful part

You do not have to predict your income accurately. You have to hit a safe
harbour, and the safest one requires nothing but last year’s return:

100% of last year’s total tax, paid in four equal instalments —
110% if your prior-year adjusted gross income was over $150,000.
Or 90% of this year’s actual tax, which requires forecasting and is
only worth it if income has dropped sharply.

The first option is the one to use in a growth year. Hit it and no
underpayment penalty applies, even if you end up owing a great deal more in
April — the extra is simply due then, without penalty.

What that looks like in practice

A business whose profit doubled

	Amount
Last year’s total tax	$18,000
Safe harbour, four instalments of	$4,500
This year’s actual tax	$37,400
Due in April, penalty-free	$19,400

Paying $4,500 a quarter is enough to avoid any penalty. The remaining $19,400 is simply payable in April — which is precisely why the money has to be set aside as it is earned, not found later.

The deadlines are not quarters

The instalment dates are irregular, which catches people out. They are
15 April, 15 June, 15 September and 15 January of the following
year. The June instalment covers two months, not three, and the gap between
September and January is four.

A set-aside rule that works

The mechanism matters more than the arithmetic. What works, in order:

Open a separate tax savings account. Not a sub-ledger, a separate
account. Money that is visible in the operating balance gets spent.
Move a fixed percentage every time money lands. For many owners
25–30% of net profit is a workable starting point, but the honest
answer depends on your state, your entity and your other income.
Pay the instalment from that account and never from operating
cash.
Revisit the percentage after two quarters against actual figures.

Where the generic advice fails. “Set aside 30%” ignores state tax,
which ranges from nothing to over 13%, self-employment tax on top of income
tax, and the QBI deduction pulling the other way. It is a starting point for a
conversation, not a number to run a business on. This article is general
information and not tax advice for your circumstances.

If you have already missed one

Pay it as soon as you can rather than waiting for the next date. The
underpayment penalty is calculated as interest for the period the money was
late, so a payment three weeks late costs three weeks of penalty — it is
not a fixed fine, and it is not all-or-nothing. Catching up early genuinely
reduces it.

Questions we get asked

01How much should I set aside?

Many owners start at 25–30% of net profit, but treat that as a starting point rather than an answer. It moves with your state — which ranges from nothing to over 13% — your entity type, self-employment tax, the QBI deduction, and any other household income. The safe-harbour figure from last year’s return is the more reliable target.

02What is the safe harbour exactly?

Pay 100% of last year’s total tax in four instalments — 110% if your prior-year AGI was over $150,000 — and no underpayment penalty applies, however much you end up owing in April. The alternative is 90% of the current year’s actual tax, which requires forecasting.

03When are the payments due?

April 15, June 15, September 15, and January 15 of the following year. They are not even quarters: the June instalment covers two months and the gap to January is four, which is what catches people out.

04What if I miss a payment?

Pay as soon as you can rather than waiting for the next date. The penalty is computed like interest for the period the money was late, so it is neither a fixed fine nor all-or-nothing — catching up early genuinely costs less.

05Do I need to pay estimates in my first year?

Often yes, once the business is profitable. There is an exception where you had no tax liability at all in the prior year and were a US citizen or resident for a full twelve-month year — worth checking against your actual facts rather than assuming either way.

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