Prepare for Quarterly Estimated Taxes
Quarterly estimated tax payments keep you compliant with the IRS and prevent costly penalties at year-end. This recipe walks you through calculating how much to set aside based on your year-to-date earnings and reviewing your payment history. By spending 20 minutes now, you'll know exactly what you owe and can budget accordingly.
1. Get YTD net income
Your year-to-date net income is the foundation for estimating your quarterly tax liability. This figure represents your profit after expenses and tells you how much income the IRS will expect you to pay taxes on.
2. Estimate self-employment tax
Self-employment tax covers Social Security and Medicare obligations for freelancers and LLC owners. Based on your YTD net income, you'll calculate a rough estimate of what to set aside for quarterly payments to stay ahead of your tax bill.
3. Check last quarter's payment
Reviewing your previous estimated tax payments ensures you're staying on track and not overpaying or underpaying. This helps you adjust your next payment if your income is trending higher or lower than expected.