Avoid tax panic

You know that sinking feeling you get in Spring when you realize you owe the IRS way more than you thought?

Yeah. My clients have too.

When they first went self-employed, they treated quarterly taxes like a suggestion rather than a requirement. Spoiler alert: the IRS does not appreciate that approach. The penalties? Not fun. The scrambling to find thousands of dollars you didn't set aside? Even less fun.

But here's the thing, it doesn't have to be this way.

As a Financial Coach for small businesses working with self-employed families, I've seen the quarterly tax panic destroy cash flow confidence for too many people. And I'm here to tell you: there's a better way.

Why Quarterly Taxes Feel So Overwhelming

Let's be real about why this is hard.

When you're a W-2 employee, taxes are invisible. They disappear from your paycheck before you ever see them. You don't miss what you never had, right?

But when you're self-employed? You see all the money come in. That big invoice payment hits your account, and suddenly you feel rich. Until you remember that 25-30% of it isn't actually yours (depending on your business structure & household deductions), it belongs to Uncle Sam.

The problem isn't that you don't know you owe taxes. The problem is that when the money is sitting right there in your checking account, it's really hard not to spend it on the business expenses piling up, the family vacation you've been postponing, or just... life.

And then quarterly payment time rolls around, and you're playing a very stressful game of "where is this money going to come from?"

The Safe Harbor Rules You Need to Know

Before we dive into solutions, let me give you the quick version of what the IRS actually requires.

If you expect to owe $1,000 or more in federal taxes for the year, you need to make quarterly estimated payments. Those dates are:

• April 15
• June 16
• September 15
• January 15 (of the following year) - I do this one by 12/31 just to keep things all within the same year

Here's the silver lining: the IRS gives you two "safe harbor" options to avoid penalties:

1. Pay at least 90% of your current year's tax liability, OR
2. Pay 100% of what you paid last year

That second option? It's a lifesaver if your income fluctuates wildly. Had a huge year last year but things are slower this year? You can base your payments on last year's numbers and avoid penalties, even if you end up owing more in April.

As a small business financial coach, I help families make sure they know their tax liability by connecting them to CPAs, AND then I help them develop a system to set aside money monthly for estimated taxes. 

The "Bucket System" That Changes Everything

Okay, so here's the system that actually works. I call it the Bucket System, and it's saved my clients thousands of dollars in stress, penalties, and "surprise" tax bills.

Step 1: Know Your Numbers

You can't set aside the right amount if you don't know what you owe. Here's the rough formula:

• Self-employment tax: 15.3% on your net business income (up to $176,100 for 2025)
• Federal income tax: depends on your tax bracket, but figure 10-25% for most self-employed families
• State tax: varies by state (Oregon and California both have state income tax)

Most of my clients end up setting aside 25-30% of gross income to cover all their tax obligations. Yes, that feels like a lot. But it's better to over-save and get a refund than under-save and scramble.

IMPORTANT: This does not constistute tax advice as this is readily available information online. Confirm your specific percentage with your Tax Professional! 

Step 2: Create a Separate Tax Account

This is non-negotiable.

Open a high-yield savings account that you use ONLY for taxes. Name it "Tax Fund" or "IRS Money: Don't Touch" or whatever keeps you from raiding it.

Every time money comes into your business, immediately transfer your tax percentage into this account. If you make $5,000 this month, $1,250-$1,500 goes straight to the tax account before you pay yourself or any business expenses.

Step 3: Pay Quarterly: But Adjust as You Go

Here's something most people don't realize: your quarterly payments don't have to be equal.

If you have a slow Q1 but a massive Q3, you can pay less in April and more in September. The IRS doesn't require advance notice: you just adjust based on actual income.

This is why using a percentage-based buckets system oftentimes works best, instead of a fixed amount.

Step 4: Track Everything, Every Week/Month/Quarter

I know budgeting & bookkeeping isn't sexy. But you know what's less sexy? Panic-scrambling through a year's worth of receipts in March.

Set a recurring calendar reminder to track/reconcile your business income and expenses. This takes maybe an hour if you're keeping up with it, and it makes tax time SO much easier. It's also easier if you use a budgeting app like YNAB to be reminded to keep your transactions categorized. 

Plus, when you know your actual profit each quarter, you can make better decisions about whether to reinvest in the business, pay down debt, or finally take that family trip.

What This Looks Like in Real Life

Let me tell you about Sarah (name changed, but this is a real client).

Sarah is a real estate agent in New Jersey. Some months she closes three deals. Some months she closes zero. Her income swings from $2,000 to $15,000 depending on the season.

When she came to me, she was paying quarterly taxes based on last year's total income divided by four. Which meant she was massively overpaying in slow quarters and still coming up short in April because her income had grown.

We switched her to the Bucket System. Now:

• Every commission check, 30% goes to her tax account immediately
• She tracks her income and expenses monthly
• She only pays what she actually owes based on that quarter's income
• She sleeps better at night

Last year, she not only avoided penalties: she actually ended up with a surplus in her tax savings account been conservative with her estimates. And more importantly? She stopped having tax panic attacks every three months.

The YNAB Connection

If you've been reading my blog for a while, you know I'm a YNAB Certified Coach in Oregon (but I serve clients everywhere virtually). And there's a reason I love YNAB for self-employed families dealing with quarterly taxes.

Not keen on having multiple accounts with a Buckets System? You can digitally organize your money without moving it to different accounts, making the Bucket System even easier. You can literally see your tax money sitting there, assigned and ready, without the temptation to spend it (right?).

Plus, YNAB helps you smooth out the income fluctuations that make quarterly taxes so stressful in the first place. When start to build your buffer, you're living on last month's income instead of this month's, so now that slow quarter won't feel like a crisis.

What If You're Already Behind?

Maybe you're reading this and thinking, "Cool story, Cortney, but I already missed my January payment and I have no idea what I owe."

First: breathe. You're not the first person this has happened to, and the IRS has dealt with worse.

Here's what to do:

1. Make a payment anyway. Even if you don't know the exact amount, send something. The penalties are based on what you owe AND how late you pay, so getting money to them sooner reduces the damage.
2. Talk to your CPA or tax preparer. They can help you calculate what you should have paid and what to do next. (And if you don't have a CPA you trust, check out my questions to ask when you're looking for one.)
3. Set up the system NOW. Don't wait until next January. Start the Bucket System with your next income deposit, even if it's not the beginning of a quarter.
4. Consider working with a financial coach for self-employed families. Sometimes you just need someone in your corner who understands both the tax stuff AND the cash flow chaos of running a business while raising a family.

The Relief Is Real

I'm not going to lie and tell you that managing quarterly taxes is fun. It's not.

But you know what's worse than setting aside 30% of every payment? The stomach-dropping panic of owing $8,000 you don't have.

The Bucket System, consistent bookkeeping, and a little bit of planning takes quarterly taxes from "terrifying obligation" to "annoying but manageable task."

And honestly? Once you get the system in place, it runs pretty much on autopilot. Transfer the money. Track your numbers quarterly. Pay what you owe. Done.

If you're tired of the quarterly tax scramble, this is exactly what we work on in financial coaching. We get your cash flow organized, set up systems that actually work for your real life, and take the stress out of self-employment finances.

You don't have to keep doing this the hard way.

Schedule a consultation today