Estimated Tax Payments: How Much Should Small Business Owners Set Aside for Taxes?

If you have ever crossed your fingers and hoped your tax bill would not be terrible, you are in very good company. Most small business owners I talk to, especially retail shops and online sellers, do not struggle with effort. They struggle with uncertainty.

That is exactly why estimated tax payments matter. When you have income that is not getting taxed automatically (hello, Shopify payouts, Square deposits, services, 1099 work, and side hustles), the IRS still expects you to pay taxes as you go. Estimated tax payments are how you do that, without surprises.

This post will help you figure out how much to set aside, how to build a simple system that actually sticks, and how to make estimated tax payments feel like a normal business routine instead of a looming mystery.

Estimated tax payments, explained without the jargon

Estimated tax payments are periodic tax payments you send to the IRS during the year when you have income that is not subject to withholding. In other words, if nobody is taking taxes out before the money hits your account, you are responsible for sending it in.

Estimated tax payments can cover:

• Federal income tax

• Self-employment tax (Social Security and Medicare) if you are self-employed

• Sometimes other taxes, depending on your situation

The big takeaway: estimated tax payments are not some extra, optional thing for “big businesses.” They are often just the normal “pay as you go” system for people who own businesses.

If you want the official IRS overview, this is a helpful starting point: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

Do you actually need estimated tax payments?

You are more likely to need estimated tax payments if:

• You are a sole proprietor or single-member LLC filing on Schedule C

• You are a partner in a partnership or multi-member LLC

• You are an S-corp owner and your salary withholding does not cover your total tax bill

• You have significant income from online sales, rentals, dividends, or side work

• You expect to owe at least $1,000 in tax after subtracting withholding and credits

Retail shops and online sellers often land here because income is “lumpy.” One month is slow, the next month you have a big market weekend, a wholesale order, a holiday rush, or a viral product moment.

Estimated tax payments help you match the tax bill to the reality of how your money moves.

The real question: how much should you set aside for estimated tax payments?

Let’s make this practical.

Most business owners want a simple percentage they can move into a tax savings account. And yes, I can give you a starting point, but here is the honest truth:

The best number depends on your profit, your other household income, your state, and your business structure.

That said, here are starting ranges that work well for many small business owners:

A solid starting range (most common)

• 20% to 30% of profit set aside for estimated tax payments

A simple “set it aside as money comes in” approach (easy mode)

If tracking profit weekly is not realistic right now, start with:

• 15% to 30% of every deposit or sale
  Then adjust once you see your margins.

This is why I like the “easy mode” method for retail and online sellers. You can build the habit now, then refine the accuracy as your bookkeeping gets cleaner.

Example

• Your online shop brings in $8,000 this month

• You choose 20% as your starter rate

• You move $1,600 into your tax savings account

Now your estimated tax payments are not a panic later. They are a plan now.

A simple system for estimated tax payments (that you will actually use)

Here is the system I recommend because it is easy, visual, and hard to “accidentally spend.”

Step 1: Open a separate tax savings account

Give it a boring name like:

• “Tax Savings”

• “Estimated Tax Payments”

• “Do Not Touch”

When tax money lives in the same account as inventory, shipping labels, software, and “just one more restock,” it is way too easy for it to disappear.

Step 2: Move money weekly or per payout

Pick a rhythm that matches your business:

• Weekly transfer (great for steady sellers)

• Per payout transfer (great for Shopify/Square/Stripe deposits)

• Twice a month (great if you do owner pay twice a month)

Consistency matters more than perfection.

Step 3: Keep it out of sight

If your bank lets you hide accounts from your main dashboard, do it. If not, at least do not attach a debit card to it.

Step 4: Put it somewhere it can earn interest

A high-yield savings account can give your tax money a little side hustle while it waits.

How to estimate your estimated tax payments (without becoming a tax accountant)

If you want to level up from “guess a percentage” to “I know my numbers,” here is a simple approach.

1) Estimate your annual profit

Profit is roughly:
Sales minus expenses

If your bookkeeping is up to date, your Profit and Loss report is your best friend here.

If your bookkeeping is not up to date, this is a great moment to check out:
Cash Flow Mistakes (And What To Do Instead)

2) Apply a conservative tax rate to your profit

A simple starting estimate:

• 25% to 30% of profit for estimated tax payments (federal only, for many owners)

3) Divide by four (most of the time)

Estimated tax payments are often paid in four periods per year.

Example (simple version)

• Estimated annual profit: $60,000

• Estimated tax set-aside rate: 28%

• Estimated annual tax: $16,800

• Estimated tax payments: $4,200 per period (16,800 ÷ 4)

Is that perfect? No. Is it wildly better than hoping? Yes.

And once you do this for a couple quarters, you get closer and closer.

Estimated tax payments due dates (and why the “quarters” are a little weird)

Estimated tax payments are not perfectly spaced every three months. The IRS uses payment periods that create these typical due dates:

• April 15

• June 15

• September 15

• January 15 (of the following year)

If a due date lands on a weekend or holiday, it usually moves to the next business day.

Pro tip for shop owners: Put reminders in your calendar for two weeks before each due date. That gives you time to review your numbers and move money if needed.

How to actually make estimated tax payments (and the easiest option right now)

You have a few options for submitting estimated tax payments, but most owners want a method that is fast, trackable, and does not require mailing anything.

One of the simplest ways is IRS Direct Pay, which lets you pay from your bank account:
https://www.irs.gov/payments/direct-pay-with-bank-account

You can also pay through your IRS Online Account or use other IRS payment options. If you want the IRS payment hub, it is here: https://www.irs.gov/payments

What happens if you do not make estimated tax payments?

Two common outcomes:

1. You owe a big balance at tax time, which is stressful and can crush cash flow

2. You may owe an underpayment penalty, depending on how short you were and when

Here is the part that often surprises people: even if you pay your full tax bill by April, you can still get an underpayment penalty if you did not pay enough throughout the year.

There are “safe harbor” rules that can help you avoid penalties if you pay enough during the year, even if your final bill ends up higher. This is one reason estimated tax payments are worth planning instead of guessing.

(And yes, this is also why clean bookkeeping matters. You cannot steer the ship if the dashboard is fogged up.)

If you are still DIY-ing your books and it is getting messy, this may help:
Switching to Professional Bookkeeping from DIY

Common estimated tax payments mistakes I see in retail shops and online sellers

Let’s save you from the classics.

Mistake 1: Saving taxes based on revenue when margins are tight

If your margins are slim (or you do a lot of discounted promos), saving 30% of revenue might feel impossible. That is a sign you need to shift toward saving based on profit, or at least adjust your percentage to something sustainable while you improve accuracy.

Mistake 2: Forgetting that inventory timing impacts profit

Buying inventory is not always an immediate expense in the way it feels in your bank account. That disconnect can make owners overestimate or underestimate what they should set aside for estimated tax payments.

Mistake 3: Confusing sales tax with estimated tax payments

Sales tax is not income. It is money you collect and pass through to the state. If sales tax is living in your operating account, it can distort your confidence fast.

Mistake 4: Waiting until the due date to look at anything

If you only think about estimated tax payments on April 14, you are going to feel stressed. A 15-minute monthly check-in keeps you steady.

If you want a simple monthly rhythm, you might like this post:
Monthly Business Checklist: What to Track and Review

Mistake 5: Ignoring the “big month”

A big month is great. It is also a tax event. If you have a $12,000 month after a launch or holiday rush, bump your estimated tax payments set-aside for that month. That is how you avoid the “I made more, so why do I feel broke?” spiral.

For a seasonal money reset, this is helpful too:
Blog Link Holiday Financial Tips for Small Business Owners

A quick 3-step plan to feel confident about estimated tax payments

If you want the simplest plan that still gives you real control, do this:

1. Pick a starter percentage today (most owners start at 20% to 30%)

2. Open a separate tax savings account and transfer consistently

3. Review monthly and adjust based on your real profit trends

That is it. No fancy math required to start.

Key takeaways on estimated tax payments (so you can stop guessing)

• Estimated tax payments are how many small business owners pay federal taxes during the year when income is not withheld automatically.

• A strong starting point is often 20% to 30% set aside, then adjusted based on profit and your specific tax situation.

• A separate tax savings account makes estimated tax payments dramatically easier to manage.

• Monthly check-ins keep you ahead of busy seasons, slow seasons, and surprise tax bills.

• Paying throughout the year can help you avoid penalties and protect your cash flow.

Ready for a calmer tax season?

If you want help setting up a simple system for estimated tax payments, getting your books caught up, or walking into tax season feeling ready (instead of sweaty), I would love to support you.

• Email me: [email protected]

• Call or text me: 603-892-8879

• Bookkeeping services: https://balancedpathfinancial.com/bookkeeping-services

• Tax services: https://balancedpathfinancial.com/tax-preparation-services

• Personal finance services: https://balancedpathfinancial.com/personal-finance-services

You focus on your products, your customers, and your community. I will help you keep the numbers clear and the tax plan steady.