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 in 2020), 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 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. As long as you pay 100% of your prior year tax liability (or the amount you owed in taxes last year), you should not owe money for interest and/or penalties from the IRS or state taxing authorities.