Hey there y'all! I hope everyone is doing well today.
I want to talk about quarterly taxes...I know, I know - stick with me. It's a question I get a bunch (and for good reason), so I've answered it a bunch this year...over email, over the phone, in a text at nine at night, across a table with a cup of coffee. And every single time I answer it, I get a little better at explaining it (at least I hope so). So here's this round's attempt.
Here's the thing nobody warns you about. There's no letter that shows up in the mail, no welcome packet, no orientation day for working for yourself. You just...start. The money comes in, you pay your bills, you feel pretty good about how it's going - and then somewhere around the following April you find out the IRS was expecting four payments you had never heard of. Plus a penalty for missing them.
I've watched this trip people up so many times that I stopped being surprised by it years ago. This isn't a you problem. It's a nobody-tells-you problem.
Why the IRS wants money four times a year
Here's the version that finally made it click for me.
When you've got a normal W-2 job, taxes come out of every single paycheck and you never touch that money...you never really even see it. Your employer takes it, sends it in on your behalf, and by the time April rolls around the government already has most of what you owe. The whole thing happens quietly in the background while you go about your life.
When you work for yourself? Nobody's doing that for you. You get the whole check - all of it - which feels amazing in March and pretty rough in April.
So quarterly payments are just...you, doing the job your employer used to do. Same money, same year. You're only the one pressing send now.
That's the whole concept. Everything else is mechanics.
And that's exactly where we're headed from here - three things, then you're done. How much to actually set aside...what to do if you're already an S-corp running payroll (this is the one that confuses almost everybody)...and the one due date that catches more people than the other three combined. Give me five more minutes and I'll make this as painless as I can.
One: how much to set aside
Most folks land somewhere between 25 and 35 percent, depending on how much other income is in the household and what state you're sitting in. If you want one number to start using today - use 30.
Here's what that looks like with real math.
Say you net $60,000 after expenses. Self-employment tax runs about 15.3 percent on most of that, so call it $8,500. Federal income tax on top of that depends on your whole picture, but for a lot of single filers at that income it lands somewhere near $5,000. Add those together and you're looking at roughly $13,500 for the year...about $3,400 a quarter.
Thirty percent of $60,000 is $18,000. So setting aside 30 leaves you with a cushion instead of a surprise - and a cushion in April is exactly where I want you sitting.
One more thing worth knowing, because it takes a lot of the pressure off the guessing. You don't actually have to predict this year perfectly. If you pay in what you owed last year, you're protected from the penalty even if this year turns out bigger. So if the forecasting part is what's been stopping you, go pull last year's return, find the total tax line, divide by four, and start there. That's a real number off a real form and it counts.
Two: "but I'm an S-corp and I already run payroll"
This is the one I get asked about most by people who've already taken the next step, and it's a genuinely good question.
If you're an S-corp shareholder you're paying yourself reasonable compensation through payroll...which means taxes are already coming out of those paychecks, same as a regular job. So the natural thought is: am I done here? Do I still need to make quarterly payments on top of the payroll I'm already running?
Usually...yes. But the reason why is not the reason most people think, and I want to slow down here, because I've explained this part clumsily myself before.
Most folks assume the distributions are the thing being taxed. They aren't - not the way people picture it, anyway. Here's what's actually happening.
Your S-corp's profit gets taxed to you when the company earns it. Not when you move the money. When it's earned. At the end of the year you get a K-1 showing your share of that profit, and it lands on your personal return whether you pulled the cash out or left every dollar of it sitting in the business checking account. That's what "pass-through" really means...the income passes through to you, and it doesn't wait around for you to touch it.
The distributions themselves are usually tax-free. You already paid tax on that profit through the K-1, so pulling the cash out later isn't a second bill on the same money. It's only when your distributions run past your basis - roughly, what you put in, plus the profit you've already been taxed on, minus what you've already taken out - that the extra becomes taxable.
So why do you still end up owing? Because your payroll withholding only covers your wages. The profit above your wage comes in on that K-1 with nothing withheld against it at all. Nobody is holding that back for you.
You've got two ways to handle it. You can make quarterly estimated payments to cover that side...or you can bump up the withholding on your own paychecks to cover both. I lean toward the second one for a lot of clients, because it's one system instead of two - and because withholding gets treated as though it were paid evenly across the whole year, no matter when it actually happened. So if you get to November and realize you're behind, you can still fix it. A September estimated payment is stuck being a September payment forever. That last piece is a small bit of tax trivia that has saved people real money in penalties.
While we're here - the "reasonable" in reasonable compensation is doing real work. If the salary is set too low so more can ride out as distributions, the IRS can reclassify those payments as wages and hand you the payroll tax anyway. So the thirty-second-video version of this strategy is not the free lunch it sounds like.
Three: the date that gets everybody
The four due dates are not three months apart. I know that sounds like a nitpick. It has cost people actual money.
They land on April 15, June 15, September 15, and January 15. Look at that second one for a second...it's two months after the first, not three. Almost everybody who misses a payment misses June - because they paid in April and then counted forward three months on the calendar like a completely reasonable person would.
Put all four in your phone today. Set the reminder a week early on each one.
What to do this week
Open a second savings account, name it something obvious like "Taxes," and move 30 percent of every payment into it the day it lands. Not at the end of the month...the day it lands. The whole system works because the money is already gone before you ever get used to seeing it sitting there.
That's the whole thing. Set aside the 30 percent, put the four dates on your calendar, and you are already ahead of where most people are in year one.
If this is the version that finally made it click - that's exactly what I was hoping for. And if it didn't, tell me where I lost you and I'll write it another way. That's kind of the whole point of all this.
This is education, not advice, and reading it doesn't make you a client. And if you already are a client - this kind of general writing sits outside our engagement. Your engagement covers your return, your books, your situation. This covers everybody's, which means it can't really cover yours. So before you act on any of it, reach out and let's talk about your actual numbers. That's what the individual advice is for. Information current as of August 2026.
Where I'm getting this: IRS Topic 306, Underpayment of Estimated Tax · IRS Publication 505, Tax Withholding and Estimated Tax · IRS, Self-Employment Tax · IRS, S Corporation Stock and Debt Basis · IRS, S Corporation Compensation and Medical Insurance Issues
Varde Financial, LLC · Abel Scott, EA · vardefi.com
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