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The first time most small business owners learn about quarterly estimated taxes is the year they file and find out they owe one.
Not a fun letter to get from your CPA.
There’s the tax bill itself, plus a penalty that quietly accrues on every day the money was due and not paid.
If you’ve missed a payment for 2026, or if you don’t pay estimated taxes and you’re starting to wonder if you should, here’s how it actually works.
The IRS expects you to pay tax as you earn it. W-2 employees handle this through paycheck withholding.
Everyone else, business owners, partners, S corp shareholders, real estate agents on 1099, salon owners renting their booth, has to send the IRS a check four times a year.
The threshold is straightforward. If you expect to owe more than $1,000 in tax for the year after withholding and credits, you owe estimates.
Mark these on the calendar now if you haven’t:
A few of those don’t line up with the calendar quarters, which trips people up every year. Q2 is only two months after Q1. Q4 isn’t due until the following January.
When people hear “penalty,” they picture a flat fee. It’s not.
It’s an interest charge on the amount you should have paid, calculated daily, from the day each quarterly payment was due until the day you actually paid (or until tax day, whichever comes first).
The interest rate is set by the IRS each quarter and tracks the federal short-term rate plus three percentage points. It floats.
In recent years, it’s been in the high single digits, so on a meaningful underpayment, it adds up faster than people expect.
The good news: the IRS is calculating it for you. It shows up on Form 2210 with your annual return. There’s no surprise letter unless you ignore the bill.
Here’s the part that saves most small business owners. You don’t actually have to predict 2026 income perfectly to avoid a penalty. You just have to hit one of two safe harbors.
Safe harbor one: Pay at least 90% of what you’ll actually owe for 2026. This is the right approach if your income is roughly the same as last year.
Safe harbor two: Pay 100% of what you owed for 2025. If your 2025 adjusted gross income was over $150,000, that bumps it to 110%. This is the easy one. You already know last year’s number. Divide by four. Pay that amount each quarter. Penalty avoided, even if 2026 turns out to be a much better year.
Most of our clients run on Safe Harbor Two. It’s predictable, and it’s based on a number you already have.
Pay it as soon as you can. The penalty is calculated daily. Every day you wait costs more.
If cash flow is the problem, send what you can now and the rest as soon as possible. There’s no benefit to waiting until you can pay the full amount. You’re already accruing interest. A partial payment stops the clock on whatever portion you do pay.
A second move worth knowing: tax withheld from a W-2 is treated as if it were paid evenly throughout the year, regardless of when in the year it was actually withheld.
If your spouse is a W-2 employee, bumping their withholding for the rest of 2026 (Form W-4) can backfill missed quarters in a way that estimated payments can’t.
The IRS won’t ding you for the timing.
In our experience, missed quarterly payments are almost never a tax problem. They’re a cash flow problem.
The money’s not in the account on April 15, so the payment doesn’t go out, and the owner promises themselves they’ll catch up next quarter.
Let’s look at an example.
A salon owner has a great Q1, $80K in revenue, but most of it went back into a remodel and inventory. April 15 rolls around, and there’s nothing in the account to cut a $9K estimated tax check from.
So she skips it, plans to double up in June, and then June rolls around, and there’s a slow month, and she skips that one too. By the time she files in March 2027, she owes $35K plus penalties on payments that should have gone out a year earlier.
The fix isn’t a tax strategy.
The fix is a tax savings account she funds every time a deposit hits, before the money has a chance to get spent on something else.
Open a separate savings account labeled “taxes.”
Every time revenue hits the business, transfer a percentage to that account before anything else moves. For most of our clients in the small business range, 25-30% of net is the right starting point, with adjustments based on entity structure and personal situation.
When the quarterly deadline comes, you’re paying out of an account that has the money in it, not scrambling.
If you’d rather hand the whole quarterly tax math off to someone who’s tracking it for you, we do that as part of our monthly bookkeeping work for DFW small businesses.
We calculate the safe harbor amount, set the reminders, and tell you exactly what to send and when.
Talk to us here at Adam Traywick if you want this off your plate.
Until next time!
Adam Traywick, CPA is the President and founding CPA of Adam Traywick, LLC, a Adam Traywick CPA small-business accounting firm. He has over 20 years of experience helping small business owners across home-services trades, hair salons, real estate, and insurance agencies optimize taxes, run cleaner books, and avoid the surprises that come from once-a-year accountants.
