Tax
Estimated tax
Estimated tax is tax paid in instalments during the year on income not subject to withholding, such as business profit. The IRS expects quarterly payments and charges an underpayment penalty where too little is paid across the year, even if the balance is settled at filing.
In plain terms: Paying your tax bill in quarterly instalments rather than all at once.
Why it matters
Founders moving from employment to self-employment routinely miss this, having never paid tax except through payroll. The penalty applies for paying late during the year even if the final return is filed on time with full payment.
Read the full guideUS business taxesRelated terms
Source: IRS — Estimated taxes. This is a definition, not tax or legal advice — verify against the primary source before acting.