We keep you up-to-date on the latest tax changes and news in the industry.
Why Pay Estimates?
The tax system is intended to be a “pay-as-you-go” system, and the only way to prepay taxes is through withholding and estimated taxes. Generally, payroll comes to mind when we think about withholding, but withholding is also available through a variety of other means, including pension income and Social Security payments. However, there are a multitude of income sources that generally do not have withholding, such as self-employment income, interest, dividends, rents, gains from stock sales, alimony etc. Estimated tax payments provide a means of prepaying one’s taxes on these kinds of income.
However, the use of estimated tax vouchers is not limited to taxpayers with income not subject to withholding. A variety of situations might arise that warrant the use of estimated taxes, such as taxpayers who are paid by commissions or who receive bonuses that distort their income. Frequently, a married couple with substantial income may also rely on estimated taxes to supplement its wage withholding.
Are Estimates Mandatory?
No, it is not mandatory for you to make estimated tax payments. However, if you end up owing money when you file your tax return, then you might be subject to the underpayment of estimated tax penalty. Unless you meet one of the exceptions explained later, this penalty could apply even if all of your income sources are subject to withholding.
What is the Penalty?
It is a nondeductible interest penalty computed on a quarterly basis. The interest rate varies from quarter to quarter based on the prevailing interest rates. Over the past 8 to 10 years, the rates have been as high as 8%, but most recently have been 5% or 6%.
Estimate Due Dates
Payments are due on the 15th day after the end of the quarter, giving a taxpayer 15 days to compute their tax liability for the prior period. The tax quarters are not all the same duration.
How the payments are made is dependent upon a number of factors:
Increasing Income - When a taxpayer’s income is increasing and their tax liability will be greater than the year before, the estimates can be based on one of the “Prior Year Exception” methods (either 100% or 110% of the prior year’s tax), thereby minimizing the payments and ensuring the underpayment of estimated tax penalty will not apply. Using this approach will require the taxpayer to pay any balance by the April filing due date. This method is especially attractive to taxpayers with substantial increases in income and allows them to delay paying a substantial portion of the increase in tax until the filing due date.
Decreasing Income - When a taxpayer’s income decreases and their tax liability will be less, they probably will not want to make payments based on the “Prior Year Exceptions” since that would require them to overpay their estimated taxes. To avoid penalties, they will need to prepay 90% of their liability (current year exception) for the year or have a balance due not exceeding $1,000 (de minimis exception).
Fluctuating Income - Where a taxpayer’s income fluctuates significantly in different quarters of the year, they may not have the cash available to make even payments and will need to base their estimates on the income received during each quarter. These individuals may avoid a penalty by using the “Annualized Income Exception.” This requires the taxpayer to project their annual income and resulting tax based upon the income they have received through the current quarter. They prorate the annual tax through the current quarter and pay the prorated amount less the amount previously paid for the year.
Withholding Plus Estimates - Frequently, prepayments consist of both withholding and estimated payments. While estimated tax payments are in the control of the taxpayer, withholding is not and may fluctuate during the year. As a result, the withholding may be less than the amount needed to meet one of the exceptions. The exceptions to the penalty provide no latitude for unforeseen withholding changes.
Allocating Estimates Between Spouses and Ex-Spouses
If you and your spouse are married on the last day of the tax year but file separate returns, the following rules are used to determine who gets credit for the estimated tax payments:
Separate payments - If you and your spouse made separate estimated tax payments for the tax year, you can only take credit for your own payments.
If you made joint estimated tax payments:
Can Agree - If you and your spouse (or ex-spouse) can agree upon an allocation of the payments, then you may allocate them in any manner you wish, provided that the allocated total is the same as the jointly paid amounts for the year.
Cannot Agree - If you and your spouse (or ex-spouse) cannot agree upon an allocation, then you must divide the payments in proportion to each spouse’s individual tax as shown on your separate returns for the tax year.
Example: You and your spouse (or ex-spouse) made joint estimated tax payments totaling $3,000. You file separate returns and cannot agree on how to divide estimates. Your separate tax liability is $4,000, and your spouse’s is $1,000.
Sign up for our newsletter.
Your CFO, Reimagined as a Financial Doctor
Diagnosing root causes, prescribing solutions, and guiding your property business toward long-term wealth.
Raquel is a passionate business owner. Now, she is returning to her grassroots with a twist - guiding clients with her expertise as a CPA, she can advise your company as your trusted CFO and Advisor.
✅ CPA with Real-World Experience – I help property managers stay profitable, tax-efficient, and cash flow positive.
✅ Tax Strategist – Former advisor at California’s revenue agency.
✅ Trusted by 4,000+ Businesses – Experience across CA, FL, TX, NV, and beyond.
✅ Real Estate Investor – I understand the financial realities of property management.
✅ Entrepreneur – I’ve built businesses and know the challenges you face.
We diagnose financial inefficiencies, treat problems like poor cash flow or rising costs, and guide you to long-term financial health. That includes cleaning up your books, forecasting cash flow, optimizing operations, and helping you grow your portfolio with confidence — just like a doctor builds a custom care plan for a patient.
Bookkeepers record transactions. CPAs file your taxes. We connect the dots — helping you understand your numbers, strategically improve them, and make smarter decisions throughout the year. We work alongside your existing team to drive performance, not just compliance.
If you're unsure where your cash is going, struggling with rising costs, planning to scale, or just tired of reacting instead of planning — now is the right time. We help you get ahead of problems, not just clean up after them.
Clients typically see improved cash flow, cleaner books, higher NOI, better financial reporting, and a lot less stress at tax time. More importantly, you gain clarity, confidence, and control over your business — and a partner who helps you grow it.
Painless, transparent pricing.
Let us take away your stress and give you back your time. Choose your perfect package today.
Dedicated finance expert
Bookkeeping with accrual basis
Includes P&L, balance sheet, and cash flow statements
Includes everything in Base, PLUS
Industry KPIs and financial ratios
Monthly virtual 1-hr meetings
Monthly rolling budget forecasts
Includes everything in Base, CORE
Budget vs. actuals variance analysis and review
Payroll and HR Platform