If you’re making quarterly estimated tax payments, missing a deadline can be costly. The IRS currently charges a 7% penalty for underpayments—and since penalties aren’t deductible; The real cost can feel closer to 11%. But with strategic tax withholding, you may be able to avoid or erase penalties—even late in the year.
Strategic Withholding: The Good News
Here’s how: while estimated tax payments are due on set dates (April 15, June 16, September 15, and January 15), withholding is treated differently. The IRS considers tax withheld from W-2 wages or IRA distributions as if paid evenly across all four quarters—or on the actual date withheld, if you so choose.
This means that if you’re short on estimated payments for the year, you may still have options:
- Have your S or C corporation pay you a year-end bonus and withhold additional taxes (though be mindful of added payroll taxes).
- Adjust withholding from a W-2 job, and document the timing for quarterly allocation or direct identification.
- Use an IRA “rollover and replace” strategy. Take a distribution, withhold 100% for taxes, then redeposit the funds within 60 days to avoid tax on the withdrawal.
Each of the methods can help you meet IRS safe harbor rules and avoid penalties—often with more flexibility than standard estimated tax payments.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
Welcome to the Sterling Standard of business! Want to learn more? Schedule a meeting with our tax planning team here: https://www.sterling.cpa/contact-us/
Learn how Sterling Tax & Accounting can add value to your business!
Your virtual accounting and technology experts providing back office, compliance & strategic solutions for busy professionals.