Like most very small businesses, I have had to pay Estimated Quarterly Taxes for about twenty years now. I was first introduced to this ritual by tax preparers. After we finished filing my taxes for the previous year, they gave me four little slips of paper, one for each quarter. Each slip of paper had a dollar amount written on it, the amount I was supposed to pay in estimated taxes for that quarter, based on my income and tax rate from last year.
But in the wild world of self-employment, last year’s income doesn’t necessarily have much similarity to this year’s income. Plus, the “quarters” vary greatly a lot in actual length, from two to four months. I wanted to pay amounts which were more based on my real taxable income for that quarter. For example, between April 15 and June 15 is a two-month “quarter”; I wanted to pay estimated tax on my actual income for those two months, instead of an amount based on three months of my last year’s income. (more…)