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Should You Be Making Estimated Payments?

When it comes to estimated tax payments, many people wonder: Do I really need to pay the IRS quarterly, or can I just wait until tax day? The answer is: it depends on your income, and failing to pay on time can cost you. The key to avoiding penalties? Planning ahead and paying the right amount at the right time.

Who Needs to Make Estimated Payments?

Estimated payments aren’t just for big business owners. If you:

  • Freelance or work gig jobs

  • Own a small business

  • Earn significant investment income (interest, dividends, capital gains)

  • Have a profitable side hustle

…you may need to make quarterly payments.

The general rule: if you expect to owe $1,000 or more in taxes after withholding and credits, you likely need to pay estimated taxes.

Safe harbor rules also apply: make sure your withholding and credits are at least the smaller of:

  • 90% of your 2025 tax liability, or

  • 100% of your 2024 tax liability (110% if AGI > $150,000; $75,000 if married filing separately)

Estimated Payment Due Dates for 2025

The IRS expects timely payments. Mark these on your calendar:

  • April 15, 2025

  • June 16, 2025 (since June 15 is a Sunday)

  • September 15, 2025

  • January 15, 2026

Late or missed payments can trigger penalties—even if you eventually get a refund.

How to Calculate Your Payments

The IRS provides Form 1040-ES to help you calculate payments. Here’s what you need to do:

  • Look at last year’s tax return to estimate this year’s liability. Paying 100% of last year’s taxes usually avoids penalties.

  • If your income fluctuates, consider the annualized income method. This matches payments to your actual income throughout the year.

Common Mistakes to Avoid

Many taxpayers get penalized by:

  • Waiting until year-end to pay everything

  • Underestimating income or overestimating withholding

  • Ignoring IRS deadlines

Even small miscalculations can lead to underpayment penalties, which are calculated based on how long your taxes were unpaid.

Real-World Example

Maria, a freelance graphic designer, expected to owe $5,000 in taxes for 2025. By using Form 1040-ES and paying quarterly, she avoided penalties and managed cash flow effectively. A CPA helped her track seasonal fluctuations, ensuring payments matched income and reducing stress.

Conclusion

Estimated tax payments are a critical tool to stay compliant and avoid costly IRS penalties. Planning ahead, using Form 1040-ES, and tracking income properly are key.

If you’re unsure whether you need to make estimated payments or want help calculating them correctly, contact Guerrero CPA at 210-490-7100. Their team can create a personalized tax strategy that keeps your finances on track and your money working for you.