If you didn't pay for certain quarters this year, there are a few things you should know and be prepared for. Based on how much you have paid in prior quarters, the estimate we calculate for you for Q4 will true you up, or get you squared away for the entire year.
However, even if you do "true up" in Q4, you may still be subject to underpayment penalty fees that you'd be responsible for paying if you didn't pay or you underpaid in previous quarters of that tax year.
Our team determines your quarterly estimate using the Safe Harbor method. We calculate it by taking your prior year tax liability (the amount you owed in taxes last year), dividing by 4, and adding some cushion based on your current year business income.
For Q1-Q3, we will provide you with estimates for both federal and (home) state quarterly tax payments. It’s up to you to pay them, and you may adjust the amount if desired.
For Q4, we ask that you share all payments actually paid to the IRS/ state taxing authorities with us. This will help us calculate a final estimated payment for you to catch up for the year. This is typically more accurate since we’ll have almost a full year of income to look at for your business!
Again, this is still an estimate, and it’s normal to owe some money at year end or have a refund coming your way.
Lastly, a note from the IRS on tax liability and penalty fees:
"Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller."