The September 15 Estimated-Tax Deadline: What Small-Business Owners Need to Know

Running a business means wearing many hats. Between serving customers, managing employees, paying bills, and keeping up with daily responsibilities, it is easy for estimated taxes to slip through the cracks.

Unfortunately, missing an estimated-tax payment can lead to penalties and a much larger tax bill than expected. With the September 15 deadline approaching, now is a good time to review where you stand.

What Are Estimated Taxes?

Most employees have federal income taxes withheld from each paycheck. However, business owners and self-employed individuals may not have enough—or any—tax automatically withheld from their income.

Estimated-tax payments allow you to pay those taxes throughout the year instead of waiting until you file your annual return.

According to the IRS, individuals generally need to make estimated payments if they expect to owe at least $1,000 in tax after subtracting withholding and available credits. This can include:

• Sole proprietors
• Independent contractors
• Partners in a partnership
• S corporation shareholders
• Freelancers and gig workers
• Individuals receiving significant investment or rental income

Corporations generally must make estimated payments when they expect to owe at least $500 in tax. Learn more from the IRS.

Simple recap:

If taxes are not being withheld from all your income, you may need to make estimated payments during the year.

Why Is September 15 Important?

The year is divided into four estimated-tax payment periods. The payment for income earned from June 1 through August 31 is generally due on September 15.

Waiting until you file your return does not necessarily solve the problem. The IRS may assess an underpayment penalty when taxpayers fail to pay enough throughout the year—even if the full balance is paid when the return is filed.

Simple recap:

September 15 is the third estimated-tax payment deadline of the year. Paying late or paying too little could result in penalties.

How Much Should You Pay?

The correct payment amount depends on your income, deductions, credits, withholding, and business activity.

Generally, many taxpayers can avoid an underpayment penalty by paying:

• At least 90% of the tax owed for the current year, or
• 100% of the tax shown on the previous year’s return,

whichever amount is smaller. Different rules may apply to higher-income taxpayers and certain other situations.

Your previous tax return can provide a helpful starting point, but it should not be the only thing you consider. If your business income has increased, decreased, or changed significantly, your estimated payments may need to be adjusted.

Simple recap:

Last year’s numbers can help, but your current income and business activity should also be reviewed before determining your payment.

Signs Your Estimated Payment May Need an Adjustment

It may be time for a review if you have:

• Earned more income than expected
• Started a new business or side job
• Added a new source of freelance or contract income
• Received a large capital gain
• Sold property or investments
• Experienced a significant decrease in business income
• Changed your business structure
• Added or lost a major deduction
• Had too little tax withheld from another job

Estimated taxes are not always “set it and forget it.” When income changes, payment amounts may need to change as well.

Simple recap:

Major income or life changes can affect what you owe. Reviewing your numbers now may prevent a surprise later.

What If You Cannot Pay the Entire Amount?

Do not ignore the deadline simply because you cannot pay everything at once.

Making a partial payment may still help reduce the amount subject to penalties and interest. It is also important to keep accurate records of every payment, including the payment date, amount, confirmation number, and tax year to which it was applied.

The IRS offers several electronic payment options, including IRS Direct Pay and payments through an IRS Online Account.

Simple recap:

Pay what you can, keep your confirmation, and ask for guidance if you are unsure how to handle the remaining balance.

A Quick Estimated-Tax Checklist

Before September 15:

• Review your year-to-date income
• Update your business income and expense records
• Check how much you have already paid
• Confirm whether your income has changed
• Calculate the appropriate payment
• Submit the payment by the deadline
• Save the payment confirmation with your tax records

The Bottom Line

Estimated-tax payments can feel confusing, especially when business income changes throughout the year. A short review now can help you avoid penalties, improve cash-flow planning, and prevent a stressful surprise when it is time to file your return.

If you are unsure whether you need to make an estimated payment—or how much you should pay—the John Pharr CPA Team is here to help.

Call the John Pharr CPA Team at 850-435-8844 to schedule a tax-planning review.

This article is intended for general informational purposes and should not be considered individualized tax advice. Tax rules and circumstances vary by taxpayer.