January 15th has a way of sneaking up on you. One minute you're celebrating the holidays, and the next you're staring at a quarterly tax payment deadline, scrambling to figure out how much you owe.
I've gotten more panicked calls in mid-January than any other time of year from people who realize they have no idea what they owe for Q4. They haven't set money aside or calculated their earnings. They're hoping they can skip this payment and catch up in April. Spoiler: that's not how it works.
What most people don't realize about the final quarterly payment is that it’s different. It's the last chance to avoid surprises on your annual return because you can look at actual full-year numbers instead of just estimates.
How quarterly taxes work for the self-employed
When you work for someone else, your employer withholds taxes from every paycheck. When you're self-employed, that responsibility shifts to you. The IRS requires estimated tax payments four times a year if you expect to owe at least $1,000.
The due dates are April 15th, June 15th, September 15th, and January 15th. The quarters aren't equal. The January 15th deadline is for Q4 of the previous year, covering income from September through December. This timing confuses people constantly.
Two ways to calculate what you owe
There are two main strategies for figuring out quarterly payments. Understanding both gives you flexibility.
The 90% Rule: You estimate your total tax liability for the year and pay at least 90% of it through four equal quarterly payments.
The 100% / 110% Rule: Instead of predicting this year's income, you look at last year's actual tax liability. If your adjusted gross income (AGI) last year was under $150,000, you pay 100% of last year's tax. Above that, it's 110%.
This rule is valuable because even if you make much more this year, as long as you pay the required percentage of last year's tax, you avoid underpayment penalties. You'll still owe the difference when you file, but you won't be penalized for not paying enough during the year.
Why Q4 is your moment of truth
By the time Q4 rolls around, you're not guessing anymore. You have nine months of actual data. You know what you made in Q1, Q2, and Q3, and you have a good sense of what Q4 will look like.
Let's say you used the 100% rule, but this year has been much better and you're going to make $30,000 more than expected. When you file in April, you're going to owe a chunk of money. It's better to know that now and pay some of it in January.
Or maybe this year has been tough and your revenue is down. If you've been paying based on an estimate that's too high, Q4 is when you can adjust. The key is to look at your actual numbers, not just hope for the best.
The penalty-proof strategy
The goal isn't to overpay your taxes; it's to pay just enough to avoid penalties while keeping your money working for you. The easiest way to stay penalty-proof is to use the 100%/110% rule.
Pull up last year's tax return and look at line 24 on Form 1040, which is your total tax. Multiply it by 1.0 if your AGI was under $150,000, or by 1.1 if it was over. Divide that number by four. That's your quarterly payment.
As long as you make those four payments on time, you're protected from penalties. This approach is useful when your income fluctuates because you're using last year's known numbers as a safety net. Learning the framework for calculating and paying your fair share turns quarterly taxes from a confusing obligation into a strategic financial move.
The money management system that works
The reason so many people panic about quarterly taxes is because they haven't set the money aside. They made $15,000 in October, spent most of it, and are now surprised they don't have $3,000 for their January payment.
Treat taxes like any other business expense. When a client pays you $5,000, you don't have $5,000 to spend. You have maybe $3,000, because about $1,500 of that is money you're holding for taxes and another $500 might go to other business costs.
Set up a separate savings account labeled "Tax Savings." Every time money hits your business account, immediately transfer 25-30% to that savings account. Don't wait. Just move it.
Come January 15th, you're not panicking. You're just transferring the money from your tax savings account to the IRS. No drama, no stress.
What to do if you're already behind
Maybe you haven't made any quarterly payments, or you skipped one. Don't ignore Q4. Skipping it only makes the problem worse, as you'll owe the full amount plus penalties and interest when you file.
Calculate what you should have paid using the 100%/110% rule. If you haven't made any payments, you owe all four quarters by January 15th. It's a bigger hit than spreading it out, but it's better than waiting until April.
If you've made some payments but not enough, figure out the gap. Look at your year-to-date income and expenses and calculate roughly what your total tax liability will be. Compare that to what you've paid. The difference is what you need to make up with your Q4 payment. Getting clear on how estimated tax payments work helps you stay ahead instead of constantly playing catch-up.
Make Q4 your planning session
Use Q4 for more than just making a payment. Use it as your year-end planning session. You're looking at your full-year numbers anyway, so what else can you learn? Are you on track with your income goals? Which clients were most profitable?
This is also when you can make year-end moves that affect your taxes, like equipment purchases, expense prepayments, and retirement contributions. In Q4, you can decide which moves make sense based on actual numbers.
Build a system that eliminates surprises
The people who stress about quarterly taxes are the ones treating each payment as a separate crisis. The people who stay calm are the ones who have built systems that make these payments routine.
It starts with understanding the rules. Then it's about building habits, like setting aside money from every payment and looking at your numbers regularly. The foundation for all of this is understanding how self-employment taxes work in the first place.
