When Heard releases your quarterly tax estimate, you can open a breakdown page that shows the numbers behind it by clicking Let's See on the estimate card in Taxes > Quarterly. This article walks through what each section means, so you can see exactly how your estimate was calculated.
The five layers of your breakdown
The breakdown moves from the top down, narrowing from your full-year income to the single amount due this quarter. Some labels on your screen include the quarter you are currently viewing, so they match whichever estimate you have open. Here is each section, with example figures from a sample estimate.
1. Income
This section starts with your Projected Annual Income, which is how much you are estimated to earn this year before any tax deductions. This figure can come from Heard's calculation or from the estimated annual income you entered.
Heard calculates your private practice net income from your Profit and Loss statement and projects your full-year income from your year-to-date earnings. That projection is usually larger than what you have earned so far. In the example, $20,334.49 year-to-date projects to $61,003.47.
You can also add other income sources, such as:
- other W-2 income
- additional 1099 income
- spouse's W-2 or 1099 income(if filing jointly)
Whatever you enter here is added to your projected annual income. When a source is left blank, it shows as "--" and does not affect the total.
2. Deductions
Next, Heard subtracts the deductions you qualify for to lower the income that gets taxed. In the example, deductions total -$41,408.50, made up of:
- Standard deduction (-$32,200.00 in this example): the flat amount the estimator applies, which depends on your filing status and the tax year. At this time, the estimate does not include pre-tax deductions such as retirement contributions, investment returns, or military tax exemptions, though Heard plans to add them in future quarters.
- Qualified business income (QBI) deduction (-$4,898.74): a deduction some private practice owners qualify for, depending on income and other factors.
- Deductible portion of self-employment tax (-$4,309.76): the part of your self-employment tax that reduces your taxable income.
3. Total taxable income
This is your income minus your deductions, and it is the figure your taxes are calculated on. In the example, $61,003.47 minus $41,408.50 gives a Total Taxable Income of $19,594.97.
4. Taxes
Here Heard projects your full-year tax bill based on your taxable income, the IRS federal income tax rates, and self-employment tax. In the example, the Projected Annual Tax Bill is $10,579.01, made up of:
- Projected federal income tax: $1,959.50
- Self-employment tax: $8,619.51
This section also shows the Percentage Due This Quarter, which is the share of your annual bill owed by this point in the year, including any earlier payments.
Note: This is a running total for the year, not the amount for this quarter on its own. A 50% figure means half of your projected annual bill should be paid by this point, counting every quarter so far, so Heard then subtracts what you have already paid (in the next section), and you only owe the remaining piece this quarter.
In this example, it is 50%, so the year-to-date taxes due for the quarter total $5,289.51.
5. Taxes paid
The final section subtracts what you have already covered. Starting from the quarter's Taxes Due of $5,289.51, Heard factors in:
- Quarterly Taxes Paid to Date (-$3,633.34 in the example, from a previous quarter's tax payment).
- Projected Tax Withholdings: shown as "--" in this example. At this time, the estimate does not include W-2 Medicare and Social Security withholdings.
After these are applied, the page lands on your Quarterly Tax Estimate of $1,656.17, which is what is owed this quarter.
If your estimate looks higher or lower than expected
Most surprises in an estimate trace back to your numbers, and you can resolve them yourself:
- Use the "double-check your entries" link on the estimate card to review your income and entries.
- Make sure your Profit and Loss statement and transaction categorizations are up to date, since they feed into your income figure.
- If a single transaction looks miscategorized, correct it in your transactions.
- After any change, select Make Adjustments to recalculate. Edits are not reflected until you do this.
FAQs
I updated my income or my books, but my estimate did not change. Why? Changes to your Profit and Loss statement, transactions, income entries, or categorizations are not reflected until you select Make Adjustments again. That recalculates the breakdown with your latest numbers.
Why is my estimate different from last quarter? Each estimate reflects your most recent income and deductions, so it shifts as your books change. The amount also varies from quarter to quarter: the share of your annual bill that is due grows as the year progresses, and the estimate already accounts for what you have paid so far.
Does this breakdown include my state taxes? This breakdown shows your federal tax estimate. A state estimate breakdown is not available.