How Self-Employed People Handle Quarterly Estimated Taxes

If you're self-employed, nothing withholds taxes from your income. No employer deducts them each paycheck. The IRS still expects them — quarterly estimated taxes self-employed people send four times a year, in place of the withholding payroll handles automatically. Most freelancers know this in theory. Fewer of them have a reliable system for calculating what to send.

What estimated taxes are

The IRS requires taxes to be paid as income is earned, not all at once in April. For self-employed people, this means quarterly estimated tax payments: due in April, June, September, and January (for Q4 of the prior year). The exact due dates shift slightly each year — check IRS.gov for the current schedule.

Each payment covers two things: income tax on your net profit, and self-employment tax at 15.3%, which covers Social Security and Medicare. Both are calculated based on business income minus deductible expenses. The less you can deduct, the higher the number you're paying tax on.

The safe harbor rule

The IRS provides a mechanism that avoids underpayment penalties without requiring precise quarterly calculations: the safe harbor rule. Pay 100% of what you owed in federal taxes last year — or 110% if your adjusted gross income exceeded $150,000 — spread across four equal quarterly payments, and you avoid the underpayment penalty regardless of what you end up owing for the current year.

For freelancers with fluctuating income, or anyone in their first few years of self-employment, the safe harbor method is often the most practical approach. Pull the total tax line from last year's federal return. Divide by four. Send that amount by each quarterly deadline. You won't owe a penalty even if your income is significantly higher this year.

Estimating based on current income

The more accurate approach is to estimate your actual current-year tax liability each quarter. Project your net profit for the year, apply self-employment tax (15.3%) and your expected income tax bracket, and pay 25% of the estimated annual total each quarter.

This method is more precise but requires a mid-year income estimate. For freelancers with consistent monthly revenue, the math is straightforward. For those with variable income, the estimate has to be revisited each quarter. Software like QuickBooks Solopreneur, Hurdlr, or Keeper calculate this automatically; if you're not using one of those tools, a CPA familiar with sole proprietors can run the calculation for a fraction of what the underpayment penalty costs.

What expense tracking has to do with it

Your quarterly estimated tax depends on your net profit: income minus deductible business expenses. The more completely you track deductible expenses, the lower your net profit, and the lower your estimated payments.

Your Expense Ledger doesn't calculate quarterly estimated taxes — that's not what it's built for. What it does is organize your expenses into the exact structure your CPA or the IRS uses: 17 Schedule C expense categories, totaled in the Tax Summary, filterable by year with the G1 year filter. When you or your CPA sit down to calculate a quarterly estimate, you have an organized picture of deductible expenses to date — not a pile of receipts or a bank statement to parse. On Premium, Email Tax Report sends your Tax Summary, expense transactions, and mileage log directly to your CPA as formatted PDFs from the menu, and Tab Export saves any tab to your Drive by year.

What to actually do this quarter

If you've been self-employed before: pull last year's total tax line from your federal return. Divide by four. Send that amount to the IRS by the next quarterly due date.

If this is your first year: estimate your net profit for the year based on what you've earned so far. Apply 15.3% for self-employment tax plus your expected income tax rate. Divide by four. A CPA familiar with sole proprietors can do this calculation in a short call — the cost is far less than an underpayment penalty.

The goal isn't to get it exactly right on the first try. It's to avoid a large surprise bill in April and stay out of penalty territory.