Why it matters
A client who owes estimated tax and does not pay it can face an underpayment penalty, even when the annual return is filed on time. The payments also keep the client from facing a large balance in April.
Example
A sole proprietor expects $90,000 of net profit and has no employer withholding. The preparer calculates the quarterly estimate and the client pays it by each due date, then reconciles the payments on the annual return.
Related terms
Questions about Estimated tax
Who needs to pay estimated tax?
A taxpayer who expects to owe tax and does not have enough withholding, such as a self-employed person, a partner or an investor, generally needs to pay estimated tax. The preparer can check the thresholds for the year.
What happens if the client misses a payment?
The client may owe an underpayment penalty calculated on the late amount. The penalty can apply even when the return is filed on time, so the payment dates matter.