Free Tool — Quarterly Tax Planning
How much should you be paying in estimated taxes — right now?
Physician practice owners who underpay quarterly estimated taxes owe a penalty on top of the tax — even if they pay in full by April. Enter your income and structure, get your quarterly payment amount and due dates in 90 seconds.
Estimated taxes, answered
Why the quarters are not quarters, what safe harbor actually protects, and how the penalty is calculated.
When are estimated tax payments due?
For calendar-year individuals: April 15, June 15, September 15, and January 15 of the following year. The periods they cover are uneven — the first covers three months, the second covers two, the third covers three, and the fourth covers four. An owner dividing an annual estimate into four equal payments is therefore systematically underpaid through the first half of the year even though the total is right.
How much should a practice owner pay each quarter?
Safe harbor is usually the cheapest certainty. Paying 100% of the prior year's total tax — 110% if prior-year adjusted gross income exceeded $150,000 — generally protects against underpayment penalties regardless of how the current year turns out, and it has the advantage of being a known number in advance. Paying 90% of the current year's actual tax also works but requires forecasting a year still in progress.
What is the penalty for underpaying estimated tax?
It is not a flat fine. Underpayment is charged as interest, computed quarter by quarter on the amount that was short and for the time it stayed short, at a rate tied to the federal short-term rate and adjusted quarterly. A payment made late in the year does not undo a shortfall from an earlier quarter, which is why a large Q4 catch-up payment often fails to eliminate the charge.
Do S-corp owners owe estimates on distributions?
Owners owe estimated tax on their share of pass-through income, which is reported on the K-1 and is taxable whether or not cash was distributed. Payroll withholding on the owner's W-2 salary covers part of the liability, but the profit flowing through above that salary generally is not withheld on. Owners who treat their paycheck withholding as the whole picture are the ones most often surprised in April.
What if practice income changes sharply mid-year?
The annualized income installment method allows payments to track income as it is actually earned rather than in even installments, which helps practices whose collections are seasonal or that had an unusual event in one quarter. It requires more record-keeping and a form filed with the return. For a practice whose income simply grew, the prior-year safe harbor is usually the simpler protection.