Quarterly taxes are part of running a small business. But they don’t have to disrupt your cash flow or catch you by surprise. Setting aside money throughout the year can make tax payments more manageable and help you keep your business finances on track.
Quarterly estimated tax works a lot like paycheck withholding. Instead of paying taxes through withholding from a paycheck, self-employed individuals and many small business owners make payments four times each year. These payments may include both income tax and self employment tax, which covers Social Security and Medicare contributions.
Think of quarterly taxes like routine vehicle maintenance. A little preparation along the way can help you avoid bigger expenses and unexpected stress down the road. Here’s how to prepare your small business for quarterly taxes and build cash reserves along the way.
Start with your business structure
This guide is most helpful for small business owners with simple tax situations, including:
- Independent contractors (even if you also have a W-2 job)
- Sole proprietors
- Partnerships
- LLCs and LLPs filing as individuals
Corporations and LLCs or LLPs that elect S corporation taxation follow different tax rules. It’s a good idea to check with a tax professional in those situations.
Separate your tax savings
Separating your personal and business bank accounts helps you track your business income and keep clear records. Here’s a setup that works for many business owners.
- A business checking account to receive client payments and pay bills.
- A business savings account for emergency funds and other savings goals.
- A separate business savings account for taxes.
Estimate your quarterly taxes
A little planning early in the year can make quarterly tax payments easier to manage. Here are several ways to estimate your quarterly taxes.
Past taxes method
If your tax situation and business income are stable year to year, the simplest way to calculate your estimated taxes is to divide last year’s taxes by four.
Calculator method
If your business is new, or if your financial situation has changed, you can use a calculator to get the most accurate estimate.
- For federal taxes, you can use Form 1040-ES for income tax and self-employment tax. Divide the annual tax result by four.
- Maryland has an online calculator for state taxes. There is no state self-employment tax.
Rough estimate method
You can also estimate based on your projected business revenue and expenses. This is faster than the calculator method above, but it’s less accurate.
- Estimate what your business may bring in this year.
- Subtract expected business expenses.
- Use that number to estimate your taxes.
- Divide the total into quarterly payments.
Work with a tax professional
You can work with a tax professional. If you’re running a business full-time, getting professional support can be cost-effective, as annual filings become more complex.
Maryland also allows partnerships, LLCs not taxed as C corporations, and S corporations to pay estimated tax differently (PTE tax). A tax professional can help you decide if that’s best for you.
Build tax savings throughout the year
To be ready at tax time, move money into your tax savings account regularly. Consider these approaches as you save throughout the year.
- Move money from business checking to tax savings every month based on your projected estimated taxes: your total projected taxes divided by 12.
- Whenever revenue comes in, move 25-30% into your tax savings account right away.
- If you always pay all profits to yourself, you can move money to your tax savings account when you take a draw (instead of when revenue comes in). Move 25-30% of each draw into your tax savings account.
Many business owners set aside 25% to 30% for taxes, but the right amount depends on your situation. A tax professional can help you choose an approach that fits your business.
Tip for new business owners: Business quarterly taxes are based on your business’s profits, not your business revenue. Revenue is the total amount you collect; profit is your revenue minus tax-deductible business expenses.
Pay on time
Estimated tax payments are due four times a year. Adding the deadlines to your calendar can help you avoid surprises and stay on track throughout the year.
Time period | Due date |
Jan. 1 – March 31 | April 15 |
April 1 – May 31 | June 15 |
June 1 – Aug. 31 | Sept. 15 |
Sept. 1 – Dec. 31 | Jan. 15 of the following year |
Choose how to pay
There are several ways to make estimated tax payments.
- For federal estimated taxes, the IRS accepts payment online, by check or money order (including your 1040-ES), or via the IRS2Go mobile app.
- For Maryland estimated taxes, most small business owners can pay via Maryland Tax Connect, selecting “Make an estimated payment” in the Individual tab.
Keep records of every estimated tax payment so you can report them accurately when you file your tax return.
Build a buffer beyond taxes
While you’re funding your tax savings account, you can create a financial cushion in your regular business savings account. Here’s how to grow your operational savings.
- Set aside a small percentage of revenue for unexpected expenses.
- Aim for one to three months of operating costs in reserve if possible.
- Use busier seasons to build savings that can help cover expenses during slower periods.
- Automate transfers from checking to savings to stay consistent.
Keep your business ready for what’s next
Whether you’re building a tax savings strategy, organizing cash reserves, or separating business and personal finances, our team can help you find tools that support your goals. Our small business banking specialists can help you set up the business savings accounts you need to build cash reserves and keep tax savings separate. We also offer additional business banking services to help your small business thrive.
