Quarterly taxes with unknown income

[JamesInGA]

How do you file quarterly taxes if you have no idea what your business will be bringing in?  We started a consulting business (Multi-member LLC) last year right before Covid hit so we only made enough for one trip to the grocery store in 2020.  We expect to have some clients this year but how many and what the income will be, and when, as consultants, we have zero clue. 

I also read on the IRS website about late payments to quarterly taxes. How can there be late payments? If we make no money the 1st quarter but do in the 2nd quarter, are we going to get hit with a quarterly late payment fee because we didn't file a $0 payment for the first quarter and now they're receiving a 2nd quarter payment? Once we start filing quarterly payments, are we on the hook to submit them, income or not, forever?

[HelenC12 · Accepted solution]

No, you are not "on the hook" to pay estimated quarterly payments if you've paid them in the past. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the quarter, as you receive income, rather than paying at the end of the year.

• Estimated tax payments are generally due approximately 15 days after quarter end so you could calculate the amount of net income you need to pay for that quarter. If you have a loss in any quarter, you wouldn't send in an estimated tax payment.

At tax time, to reduce or possibly even eliminate your underpayment penalty,  search for annualizing your tax (use this exact phrase) inside TurboTax. This will take you to the underpayment penalty section and we'll take you through the steps to possibly reduce your underpayment penalty. (If you don’t see Jump to annualizing your tax in the search results, make sure you’re in your return and not on the Tax Home page.).

[JamesInGA]

So if I make $20,000 in 1st quarter and $200,000 in 3rd quarter, they're not going to ding me for not estimating my 3rd quarter earnings and paying more for my 1st quarter tax payment?

[JeffreyR77]

That's correct.  As @HelenC12 said, it is a pay-as-you-go system. 

Most software will assume you earned all your income in a level flow through the year and calculate penalty. 

Form 2210 is where you indicate what your quarterly income actually was and then your actual quarterly tax liability can be determined. 

Many people think you have to pay 25% per quarter.  But if you haven't made the income yet, how can you pay tax that hasn't been earned yet? 

The important thing in estimated payments is to not get behind. 

Forecast your revenue proactively, set aside income for estimated taxes and make tax deposits and file tax returns on time.