Hello helynlouisehaley, thanks for your question!
You asked, "Are we supposed to calculate the quarterly estimated tax by subtracting our deductions from our income that quarter and then taking the tax percentage from that number? Or do we save the deductions for annual taxes?"
When calculating your quarterly estimated tax, you should use your expected annual income as a basis for estimating your tax liability. In general, you would not want to subtract your deductions from your income that quarter and then take the tax percentage from that number. This method does not take into account your expected total income for the year or tax liability for the whole year.
Instead, estimate your projected taxable income from all sources for the full year, then use an IRS form 1040-ES, estimator calculator, or a tax software program to determine your estimated tax liability for the year. (See the below links.)
From there, divide your estimated tax liability by four to arrive at the estimated amount you should pay each quarter. Keep in mind that you may be able to reduce your estimated tax payments if you expect to have significant deductions or credits that will reduce your overall tax liability for the year.
Additional Helpful Resources:
Please feel free to reach backout with any additional questions or concerns you might have!
Have an amazing rest of your day!
Terri Lynn, EA
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