How to Save for Estimated Taxes

If you’ve ever worked for yourself, picked up freelance work, or run your own business, you’ve probably had that moment where you realize... no one's taking taxes out of your payments.

If you’re not set up with a seasoned CPA, a fabulous bookkeeper, or working with a finance coach you might not know that you need to set up quarterly estimated taxes. 

💡 What Are Estimated Taxes & Why Do They Matter?

The U.S. tax system runs on a pay-as-you-go model — meaning the government expects to collect taxes throughout the year, not just when you file in April. 

For traditional W2 workers and their employers, that means giving weekly, bi-monthly or monthly tax payments. Those taxes are taken directly out of your paycheck when you are a W2 employee. For self employed individuals, that means setting up your own payment system with the IRS, so they’re receiving their payments on a more regular basis and you’re not getting hit with penalties. Those penalties can include underpayment penalty (calculated separately for each quarter you underpaid) as well as late payment penalties (which accrue monthly). 

Think about it this way: If everyone waited to pay their taxes all at once at the end of the tax year, the government wouldn’t have the cash flow it needs to function. So, whether you're making $1,000 a month or $10,000, the IRS wants to be paid as you go. So they set up quarterly estimated taxes because they understand not every person receives money in a linear way.

✅ Do I Need to Pay Estimated Taxes?

You probably need to pay estimated taxes if…

• You’re self-employed, freelancing, or running a small business
• Your investments make more money than your income
• You make income that doesn't have taxes automatically taken out
• You expect to owe $1,000 or more in taxes this year

Anybody who makes money has to pay taxes on that earned income. Regardless of where it came from.

Not sure if this applies to you? Talk to an accountant, bookkeeper, or finance coach. 

We tell all our clients who don't work at jobs that take out taxes to save 20-30% of net income as a general rule of thumb (revenue - expenses = net income). We build systems for our clients to track this amount alongside their monthly budget. Reach out to us here for support. 

📆 When Are Estimated Taxes Due?

There are four due dates each year:

• April 15 (for Jan–March income)
• June 15 (for April–May)
• September 15 (for June–August)
• January 15 of the following year (for Sept–Dec)

And yes — it’s kind of funky that the months aren’t evenly divided. We don’t have a good answer as to why.

🧾 What Happens If You Don’t Pay?

If you don’t pay estimated taxes:

• You might owe a big lump sum at tax time
• The IRS may charge penalties and interest for not paying throughout the year
• If you consistently underpay, those penalties and interests can add up

Yes, that’s correct. If you don’t pay estimated taxes throughout the year, the IRS can charge you a penalty and they also charge you interest (which can be 7-8%) on money that hasn’t been paid —but the IRS doesn't expect you to predict your income perfectly. That’s where the Safe Harbor rules come in. 

👀 Safe Harbor: Explained

The IRS offer a "safe harbor" — ie, a way to avoid penalties even if you underpay — as long as you’ve paid enough based on the previous year’s taxes.

You’re protected from underpayment penalties if you pay either:

1. 90% of the tax you’ll owe this year, OR
2. 100% of the tax you owed last year (this increases to 110% if your adjusted gross income (AGI) was over $150,000 — or $75,000 if married filing separately)

📚 Source: IRS Topic No. 306 — Penalty for Underpayment of Estimated Tax

So, if you follow one of those guidelines, you likely won’t owe a penalty or pay interest (7-8%) — even if you underestimated your income or had a big jump in earnings. That’s why it’s important to utilize and talk often with your personal finance team, especially if your income is inconsistent, growing, or unpredictable.

An accountant can help you:

• Figure out your safe harbor number
• Set up a payment schedule 
• Help you avoid underpayment and overpayment
• Make adjustments to estimated taxes throughout the year as needed if you experience large financial shifts

A finance coach (that’s us!) can help you: 

• Build a monthly budget that accounts for quarterly tax payments
• Help you plan ahead so taxes don’t feel like a surprise
• Set up a system to consistently set aside enough for taxes—even if your income fluctuates
• Coach you through the mindset spiral of “do I save this or spend it?” and help you make confident, values-based choices
• Hold you accountable to your financial goals, including being well prepared for tax season
• Show you how to balance tax payments, debt payoff, and savings at the same time
• Help you shift from fear and avoidance around your taxes to clarity and control

🛠️ How Do I Figure Out What to Pay?

Here’s a basic idea of how it works:

1. Estimate your total income for the year
2. Subtract estimated business expenses 
3. Use a tax calculator or ask your accountant or finance coach to help you estimate your taxes on that net revenue for the year
4. Divide that number by 4
5. Pay each chunk by the due dates listed above

Example: You made $100,000. Your expenses were $20,000. You times $80,000 by .25% (average tax liabilities). You save $20,000 for taxes but pay $5000 per quarter. 

The IRS has a simple Direct Pay tool online where you can easily pay your estimated federal taxes. You may also have estimated state taxes, and can typically pay those through your state’s department of revenue.  

✨ Bottom Line: if you’re running a business or earn income in a nonconventional way — saving for taxes and paying them quarterly is part of the gig

You deserve to feel confident about how your money flows — and that includes taxes. Estimated payments are part of making your financial systems work for you.

If you’ve been avoiding this or second-guessing yourself, you’re not alone. This stuff can be confusing — but it’s figureoutable. And you don’t have to do it alone.

Step one: prioritize just saving 20-30% of your net income for taxes. Put it in a high yield savings account. Then start building your financial team; finance coach, CPA, bookkeeper, someone who can strategize with you and get you set up to accomplish your needs and goals.  

If you want trusted referrals, practical tools, and reminders that keep you ahead of tax season — sign up for our newsletter or contact us directly. We’ll make sure you get the guidance and support you need to stay confident, clear, and in control.