The Number One Tax Mistake Self-employed People Make

Most self-employed folks already know they’re supposed to make quarterly estimated tax payments.  And yet… so many of them still don’t.

I mean, I get it….when you’re running a business, managing all the things, and wearing ten different hats, quarterly taxes are easy to push aside. But ignoring them can create some frustrating and expensive consequences when tax season rolls around.

What happens when quarterly taxes aren’t paid?

When taxes aren’t paid throughout the year, two things typically happen:

A much bigger tax bill at filing timeInstead of spreading payments across the year, everything comes due at once in April. Cash flow is already tight in self-employed gigs, so having to pay a large lump once a year is much more painful than paying as you go.

IRS underpayment penaltiesThe IRS expects taxes to be paid as income is earned. If not enough tax is paid during the year, they can assess underpayment penalties and interest, even if you pay the full amount when you file your return.

But here’s the kicker

Let’s say you forget to make the first two quarterly payments in 2025 so you pay double in quarters three and four. And, it turns out those two payments were more than you ended up owing on your 2025 tax returns, so you’re due a refund for the 2025 tax year. You can still be penalized - with interest - on the payments you skipped. The IRS wants payments spread throughout the year (like witholdings from W-2 employees) and so it treats each of the quarterly payments separately. So, even if you pay more than you ultimately owe in annual tax, if you don’t pay each quarter, you can still be assessed a penalty.

How much should you pay each quarter?

The amount you should be paying each quarter depends on your specific situation. But if you don’t want to bother with calculations, one easy way to avoid penalties is to pay 110% of your total tax from the previous year. For example, look at line 24 on your 2025 tax return “Total tax”. Take that number, multiply by 1.1, and divide that by 4. The result is your quarterly federal tax payment, and if you pay that each quarter in 2026, you will not be assessed any penalties. But you MUST pay EACH QUARTER by the deadline.

If you'd like help figuring out how much you should be paying each quarter or setting up a simple system to avoid large lump sum payouts and penalties and interest, get in touch. But whatever you do - PAY 👏🏽 YOUR 👏🏽 ESTIMATED 👏🏽 TAXES!

PS - If you missed the April 15, 2026 estimated tax payment, go pay it right now. If you get penalized for late or missed payments, the IRS can charge interest on the amount starting the day they the payment was due. So if you miss a payment, pay it as soon as you realize it to minimize any additional interest owed.