What are quarterly taxes: a complete guide for small businesses

Running your own business is no small feat, and the last thing you want is to get tangled up in complicated tax rules. If you're self-employed or a small business owner, understanding quarterly payments is key to keeping your finances in check.
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Missing a due date or underpaying can lead to hefty penalties, and honestly, who needs that stress? Plus, accurately managing these payments can help you avoid nasty surprises come tax season.
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Let's break down everything you need to know to stay compliant and keep your cash flow running smoothly, so you can focus on what you do best—growing your business.

What are quarterly taxes?

Quarterly taxes, also known as estimated taxes, are payments made four times a year to cover your tax liability. If you're self-employed or run a small business, you don't have taxes automatically deducted from your income. Instead, you need to calculate and pay these taxes yourself.
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These payments include both federal income tax and self-employment tax, which covers Social Security and Medicare contributions. The IRS requires these payments to ensure taxes are paid as income is earned, helping you avoid a massive tax bill at the end of the year. If you expect to owe $1,000 or more in taxes for the year, you generally need to make quarterly payments.
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For a more detailed overview, check out this beginner's guide to small business taxes. It provides a comprehensive look at the tax filing process.

Who needs to pay quarterly taxes?

Staying on top of quarterly taxes can feel overwhelming, especially when you're already juggling multiple responsibilities. But knowing whether you need to make these payments can save you from unnecessary headaches.

Self-employed individuals

If you’re self-employed, you fall into the category of those who need to pay quarterly taxes. This includes independent contractors, sole proprietors, partners in an LLC, and anyone running their own business.

Businesses that expect to owe $1,000+ in taxes

Businesses expecting to owe $1,000 or more in taxes for the year must make quarterly payments. The IRS operates on a pay-as-you-go system, meaning taxes should be paid as income is earned. This helps prevent a large tax bill at the end of the year and ensures the government receives tax revenue throughout the year.
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Understanding your small business tax brackets can help you better estimate your quarterly payments and avoid any surprises.

How to calculate and pay quarterly taxes

Calculating and paying quarterly taxes might sound daunting, but breaking it down step-by-step can make it more manageable.

Calculating quarterly payments

Start by estimating your annual income and expenses. This gives you a clear picture of what you owe. Use the IRS Form 1040-ES worksheet to calculate your estimated tax payments. This form guides you through the process, considering your projected income, deductions, and credits.
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Divide your annual estimate by four to determine your quarterly payment. This spreads your tax liability evenly throughout the year, making it easier to manage your cash flow. Adjust your 

Payment methods

There are several ways to make your quarterly tax payments, each with its own advantages. The Electronic Federal Tax Payment System (EFTPS) is a popular choice, allowing you to schedule payments in advance. If you prefer to mail your payment, you can send a check along with the 1040-ES voucher.
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IRS Direct Pay is a quick, secure option that lets you pay your estimated taxes directly from your bank account. For those who prefer mobile solutions, the IRS2Go app offers a convenient way to make payments on the go. If you need to make a last-minute payment, a same-day wire transfer is an option, though your bank may charge a fee.

Payment schedule and deadlines

Understanding the payment schedule for quarterly taxes is key to staying compliant and avoiding penalties. The IRS requires quarterly payments to be made on specific dates throughout the year. Here’s a detailed timeline for your quarterly payments:

First payment: Due April 15

The first quarterly payment covers income earned from January 1 to March 31. This payment is due on April 15.

Second payment: Due June 15

The second quarterly payment covers income earned from April 1 to May 31. This payment is due on June 15.

Third payment: Due September 15

The third quarterly payment covers income earned from June 1 to August 31. This payment is due on September 15.

Fourth payment: Due January 15 of the following year

The fourth and final quarterly payment covers income earned from September 1 to December 31. This payment is due on January 15 of the following year.

Adjustments for weekends and holidays

If a payment due date falls on a weekend or a federal holiday, the IRS adjusts the deadline to the next business day. Always check the calendar for any potential adjustments to avoid missing a deadline.

For a more comprehensive overview of deadlines, check out this resource on small business tax deadlines.

Tips for managing quarterly tax obligations

Managing quarterly tax obligations can seem daunting, but a few practical steps can make the process smoother and more efficient. Here are some tips to help you stay on track:

Set calendar reminders for deadlines

Missing a payment deadline can lead to penalties, so it's important to stay organized. Set calendar reminders for each quarterly tax payment due date. Digital calendars on your phone or computer can set alerts a week or two in advance, giving you enough time to prepare and ensure you have the necessary funds ready.

Review income and expenses regularly

Regularly reviewing your income and expenses helps you stay on top of your financial situation. This practice allows you to make accurate estimates for your quarterly payments. Set aside time each month to go through your financial records, noting any significant changes that might affect your tax liability.

Keep thorough records of deductions

Maintaining detailed records of your deductions can save you money and simplify the tax filing process. Keep receipts, invoices, and other documentation for all deductible expenses. Organize these records by category, such as office supplies, travel, and utilities. 

Use tax software or consult a professional

Tax software can simplify the process of calculating and paying quarterly taxes. These tools often include features that help you estimate your tax liability, track expenses, and file payments electronically. If you prefer a more hands-on approach, consulting a tax professional can provide personalized advice and ensure compliance with tax laws.

Consider setting aside funds in a separate account

Setting aside funds in a separate account for your quarterly tax payments can help you manage your cash flow. Each time you receive income, transfer a portion into this account. This practice ensures that you have enough money to cover your tax payments when they are due. 

Make adjustments to payments as needed

Your income and expenses can fluctuate throughout the year, so it's important to adjust your quarterly payments accordingly. If you experience a significant change in your financial situation, recalculate your estimated tax liability using the IRS Form 1040-ES worksheet. For additional strategies, read about reducing tax liability.

Additionally, consider taking advantage of tax credits to reduce your overall tax burden.

Consequences of not paying quarterly taxes

Failing to pay quarterly taxes can lead to several penalties and interest charges that can add up quickly. The IRS imposes penalties for both underpayment and late payment of estimated taxes. If you don't pay enough tax throughout the year, you may face an underpayment penalty.
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In addition to underpayment penalties, late payment penalties can also apply. If you miss a quarterly payment deadline, the IRS charges a penalty of 0.5% of the unpaid amount for each month or part of a month that the payment is late, up to a maximum of 25%. Interest charges also accrue on any unpaid tax from the due date of the payment until the date the payment is made in full.
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The long-term implications for small businesses can be severe. Accumulating penalties and interest can strain your cash flow, making it harder to manage day-to-day operations. This financial burden can also impact your ability to invest in growth opportunities, hire new employees, or purchase necessary equipment.
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Staying on top of your quarterly tax payments is not just about avoiding penalties; it's about maintaining the financial health of your business. Accurate and timely payments help ensure that you can focus on what matters most—running and growing your business without the added stress of tax issues.
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For more on maintaining accurate records and preparing for potential audits, read about preparing for a tax audit.

Simplify your quarterly tax management with Ramp

Managing quarterly tax payments can be complex and time-consuming, but it doesn't have to be. At Ramp, we understand the challenges small businesses face and offer solutions to streamline your financial operations.
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Don't let quarterly tax payments overwhelm you. Let us help you stay organized and compliant, so you can focus on growing your business. Request a demo or get started today.