Quarterly Tax Scenarios

Step-by-step guides for calculating quarterly estimated taxes in different situations. Choose the scenario that matches your tax situation.

Freelance/Sole Proprietor

Step-by-step guide for independent contractors, freelancers, and sole proprietors with self-employment income.

Step 1: Gather Information

  • •Prior year tax return (Form 1040 + Schedule C)
  • •Year-to-date 1099s received
  • •Projected income pipeline (monthly estimates)
  • •Business expense schedule (monthly estimates)

Step 2: Estimate Annual Income

  • •Sum all expected 1099 income for the year
  • •Add any other self-employment income
  • •Subtract estimated business expenses
  • •Result: Projected net profit

Step 3: Calculate Self-Employment Tax

  • •Apply 92.35% factor to net profit (Schedule SE)
  • •Calculate Social Security tax: 12.4% on first $176,100 (2025 wage base)
  • •Calculate Medicare tax: 2.9% on all earnings
  • •Additional Medicare Tax: 0.9% on income over $200k (single) or $250k (married)
  • •Total SE tax = SS tax + Medicare tax + Additional Medicare Tax

SE Net = Net Profit × 0.9235 SE Tax = (min(SE Net, $176,100) × 0.124) + (SE Net × 0.029) + Additional Medicare Tax

Step 4: Calculate Income Tax

  • •Subtract standard deduction or itemized deductions
  • •Apply federal tax brackets to taxable income
  • •Add state income tax (if applicable)
  • •Subtract any tax credits

Step 5: Calculate Annual Tax Due

  • •Annual Tax = Income Tax + SE Tax - Credits - Withholding
  • •If no withholding, Annual Tax = Income Tax + SE Tax - Credits

Step 6: Determine Quarterly Payment

  • •Divide annual tax by 4 for even income distribution
  • •OR use annualized income method if income is uneven (Form 2210)
  • •Compare to safe harbor: 90% current year OR 100%/110% prior year
  • •Pay the higher amount to avoid penalties

Step 7: Schedule Payments

  • •Q1: April 15 (income Jan-Mar)
  • •Q2: June 16 (income Apr-May)
  • •Q3: September 15 (income Jun-Aug)
  • •Q4: January 15 (income Sep-Dec)
  • •Use EFTPS or Direct Pay to schedule

Pro Tips

  • •Update estimates monthly as new contracts come in
  • •Set aside 25-30% of each payment for taxes
  • •Use safe harbor if income is unpredictable
  • •Keep detailed records of all business expenses

S-Corp Owner

Guide for S-Corporation owners who receive both salary (W-2) and distributions (K-1).

Step 1: Determine Reasonable Salary

  • •S-Corp owners must take "reasonable compensation" as W-2 salary
  • •Salary should reflect fair market value for services performed
  • •Remaining profit can be taken as distributions (not subject to SE tax)
  • •Consult IRS guidelines or tax professional for appropriate salary level

Step 2: Calculate Payroll Taxes

  • •W-2 salary is subject to payroll taxes (FICA)
  • •Employer portion: 7.65% (6.2% SS + 1.45% Medicare)
  • •Employee portion: 7.65% (withheld from salary)
  • •Total payroll tax: 15.3% on salary portion

Step 3: Calculate Income Tax on Distributions

  • •K-1 distributions are not subject to SE tax
  • •Distributions are subject to regular income tax
  • •Add salary + distributions = total taxable income
  • •Apply standard/itemized deductions and tax brackets

Step 4: Calculate Estimated Tax Needs

  • •If W-2 withholding covers tax on salary, no estimated payment needed for salary
  • •Estimated payments needed for tax on distributions
  • •Also need estimated payments if withholding insufficient for total tax

Step 5: Consolidate Payments

  • •Combine payroll withholding + estimated payments to meet safe harbor
  • •Ensure total payments = 90% current year OR 100%/110% prior year
  • •Quarterly estimated payments for distribution income

Pro Tips

  • •Work with payroll provider to set appropriate withholding
  • •Keep salary and distributions separate in your records
  • •S-Corp distributions avoid SE tax but still subject to income tax
  • •Consider consulting tax professional for S-Corp tax planning

Investment-Heavy Taxpayer

For taxpayers with significant capital gains, dividends, or other investment income that varies by quarter.

Step 1: Map Expected Realization Dates

  • •Identify when capital gains will be realized (stock sales, etc.)
  • •Estimate dividend income by quarter
  • •Note any large one-time investment events
  • •Track timing of each income source

Step 2: Use Annualized Income Method

  • •Do NOT simply divide annual tax by 4
  • •Use Form 2210 Annualized Income Installment Method
  • •Calculate tax based on income earned through each quarter
  • •Payments match income timing (larger payments after large gains)

Step 3: Calculate Quarterly Payments

  • •Q1: Tax on income Jan-Mar ÷ 1
  • •Q2: Tax on income Jan-May ÷ 2, minus Q1 payment
  • •Q3: Tax on income Jan-Aug ÷ 3, minus Q1+Q2 payments
  • •Q4: Tax on income Jan-Dec ÷ 4, minus Q1+Q2+Q3 payments

Q1 = Tax(Jan-Mar) / 1 Q2 = Tax(Jan-May) / 2 - Q1 Q3 = Tax(Jan-Aug) / 3 - (Q1+Q2) Q4 = Tax(Jan-Dec) / 4 - (Q1+Q2+Q3)

Step 4: Consider Safe Harbor

  • •Even with annualized method, safe harbor may be lower
  • •Compare: Annualized method vs 100%/110% prior year
  • •Pay whichever is lower to minimize payments

Step 5: Plan for Large Gains

  • •If large gain expected in Q3, increase Q3 payment
  • •Don't overpay early in the year unnecessarily
  • •Use annualized method to avoid penalties while minimizing early payments

Pro Tips

  • •Use Form 2210 Schedule AI for annualized income calculations
  • •Keep detailed records of when each investment transaction occurs
  • •Consider tax-loss harvesting to offset gains
  • •Work with financial advisor and tax professional for complex situations

Ready to Calculate Your Payments?

Use our free quarterly tax calculator to apply these steps to your specific situation.

Important Disclaimer

These scenarios are for educational purposes only. Tax situations can be complex, and these guides provide general information. For specific advice tailored to your situation, especially for S-Corp structures or complex investment portfolios, consult with a qualified tax professional or CPA.