Estimated Tax Payments

The US tax system is pay-as-you-go. If you're a W-2 employee, your employer handles that through paycheck withholding. But if you're self-employed, freelancing, earning rental income, or sitting on large investment gains, you're on the hook to send the IRS quarterly payments yourself.

Those payments are due April 15, June 15, September 15, and January 15 (that last one covers Q4 of the prior year). Miss a deadline and you'll get hit with an underpayment penalty—basically interest on what you should have paid. The penalty rate shifts quarterly and is tied to the federal short-term rate plus 3%.

The easiest way to stay out of trouble is the safe harbor rule. Pay at least 100% of last year's total tax (110% if your income tops $150,000), or at least 90% of this year's tax, and you're penalty-free. Most people go with the prior-year method because the math is simple—divide last year's tax by four and send that amount each quarter.

Crypto investors, heads up: this trips up a lot of people. If you lock in a big gain in Q1, you may owe a sizable estimated payment by April 15—even if you immediately reinvested the proceeds. Skipping that payment is one of the most common (and costly) mistakes new crypto traders make.

Don't forget state estimated taxes, either. California, New York, and other high-tax states have their own schedules and penalties. Some states let you cover estimated payments through extra W-2 withholding, which can simplify things if you have a day job.