You open your mail in October and there’s a notice from the IRS. Underpayment penalty. You owe an extra $800 on top of your regular tax bill because you didn’t make quarterly estimated payments. Or you made them but calculated wrong.
This happens to NJ business owners constantly. You’re focused on landing clients, managing cash flow, hiring people, and keeping the business running. Quarterly tax estimates feel like busy work until the penalties show up.
Sincoff & Sincoff, LLC, deals with this situation regularly. Business owners are confused about why they owe penalties when they paid their taxes. Here’s what’s actually happening and how to avoid it.
Why This Even Exists
Your cousin works at a hospital. Taxes come out of her paycheck every two weeks. She doesn’t think about it. April comes, she files, maybe gets a refund.
Let Us Help You Avoid Tax Penalties In New Jersey
You run a landscaping business. Clients pay you. The full amount hits your account. No taxes withheld. The government still wants its money, though, and they don’t want to wait until next April to get it.
That’s the whole point of quarterly estimates. Spreading your tax payments across the year instead of one lump sum. The IRS figures that if employees pay taxes every paycheck, business owners should pay multiple times a year, too.
Who Gets Hit With This
Did you make decent money from your business? You probably need to deal with quarterly estimates. The threshold is low enough that most profitable small businesses qualify.
Freelance graphic designer pulling in $60k? Need to pay quarterly. Plumber with a one-person operation making $80k? Quarterly payments. Own a small retail shop? Same deal.
And you’re in New Jersey, which means you’re potentially dealing with both federal quarterly payments and NJ quarterly payments. Two different agencies, two sets of forms, two payment systems. It’s a mess.
Your accountant neighbor, who’s an S-Corp, handles it differently than your friend with an LLC taxed as a sole proprietor. Business structure changes the rules. Sincoff & Sincoff, LLC can tell you what applies to your specific setup instead of you guessing based on what worked for someone else.
The Schedule Is Ridiculous
If something’s called “quarterly,” you’d think payments are due every three months. March, June, September, December. Makes sense, right?
That’s not how it works. The IRS created its own calendar that defies logic.
You make your first payment in mid-April for the first chunk of the year. Second payment in mid-June, but that only covers two months. The third payment in mid-September covers three months. Fourth payment, the following January, for the last four months.
The periods aren’t equal. Nobody knows why. Probably the same reason tax forms are incomprehensible.
New Jersey runs its own schedule for state taxes. Similar but not identical to federal. You need to track both.
A friend of mine missed the June deadline by three days. Just forgot. Still got penalized even though he paid everything he owed. The system doesn’t care that you eventually paid. It cares about the deadline.
Calculating This Nightmare
Here’s what you’re supposed to do: estimate your total income for the entire year, calculate the tax on that, divide by four, and pay that amount quarterly.
Back in April, you were predicting what you would make through December. Your best client might leave in July. You might land three new accounts in October. Revenue is unpredictable. Expenses fluctuate. Profit is a moving target.
Most business owners guess and hope for the best. That causes problems.
The Loophole That Actually Helps
There’s a way to avoid penalties even if your estimate is wrong. Two options.
Pay at least 90% of what you’ll actually owe for the current year. Hard to do when you don’t know what you’ll owe until the year’s over.
Or pay 100% of what you paid last year. This one’s easier. Grab last year’s return, look at the total tax line, divide by four, and pay that quarterly. If you made way more this year, you’ll owe in April, but no penalty.
There’s a catch. If you made over $150k last year, you need to pay 110% of last year’s tax to use this method.
And if this is your first year in business? You’re out of luck. No prior year to reference. You’re stuck estimating and crossing your fingers.
New Jersey Wants Their Cut Too
Some NJ business owners owe both federal and state quarterly taxes. Some only owe federal. Depends on your business type and how much you make.
New Jersey has Corporation Business Tax. They’ve got Pass-Through Business Alternative Income Tax. Different rules for different structures.
You can’t just assume you know what you owe. Sincoff & Sincoff, LLC figures this out for clients all the time. Getting it wrong means penalties from both the IRS and New Jersey.
How You Actually Pay
Federal payments go through something called EFTPS. Government payment system. Set up an account online, schedule your payments. Takes about ten minutes to set up initially.
You can mail paper checks with the voucher form if you’re old school. Most people do it electronically now because it’s tracked and you get confirmation.
New Jersey uses their own system. Completely separate. Different website, different login credentials, different forms.
I know a contractor who paid all his federal quarterly estimates on time, but completely forgot about New Jersey. April comes and he owes the state thousands plus penalties. Just didn’t realize NJ was separate.
Set phone reminders for the due dates. Missing a payment because you forgot doesn’t get you out of penalties.
Common Ways This Goes Wrong
Self-Employment Tax Blindsides People
You calculate quarterly payments based on income tax. Seems logical. Except you also owe self-employment tax, which covers Social Security and Medicare when you work for yourself.
That’s about 15% on top of your regular income tax. Substantial amount.
Leave that out of your quarterly calculation and you underpay significantly. Come April, you owe a big chunk plus underpayment penalties.
Income Jumps Mid-Year
Had a slow first quarter, then business exploded. You’re still making quarterly payments based on what you thought you’d earn back in April when things were slow.
Your actual income for the year is now way higher. The safe harbor protects you from penalties but you’re going to owe a lot in April. Some people prefer recalculating and increasing quarterly payments to avoid a massive bill later.
Works the other way too. Business tanks mid-year but you’re still paying estimates based on good projections. You’re overpaying and the government holds your money interest-free until you file and get it back.
Mixing Everything Together
Your business makes $70k. Your spouse’s W2 job makes $60k. You have some investment income. All of that hits your joint tax return.
Some people calculate quarterly estimates based only on business income. But your tax liability includes everything. Business profit, spouse’s income, investment gains, all of it.
Calculating quarterly payments without looking at the full picture leads to underpayment.
Ignoring State Completely
Focuses entirely on federal taxes. New Jersey isn’t even on the radar. Then tax time arrives and New Jersey wants their money plus penalties for not paying quarterly.
Both need attention. Both have deadlines. Both will penalize you.
Penalties Add Up Faster Than You Think
Underpayment penalty rates seem small. A few percentage points. Doesn’t sound terrible.
Except it compounds. Miss one quarter, penalty. Miss two quarters, bigger penalty. Underpay significantly all year, with penalties for each quarter’s shortfall.
Then New Jersey adds their penalties on top of federal. Suddenly, you’re looking at penalties totaling hundreds or thousands of dollars.
Guy I know underpaid his quarterly estimates by about $8,000 total across the year. Thought he’d just pay it in April. Penalties from the IRS and New Jersey combined cost him over $600. That’s money gone for nothing except filing late instead of quarterly.
When You Need Professional Help
First year running a business? Get help with quarterly estimates. Guessing wrong in your first year sets a bad precedent and costs money.
Income all over the place? One month you make $15k, next month you make $3k. Calculating quarterly payments for inconsistent income is tricky. Someone familiar with business taxes can help smooth it out.
Got partners? Shareholders? Multiple business entities? The calculations get complicated fast. DIY becomes risky.
Sincoff & Sincoff, LLC, works with NJ business owners on this stuff regularly. Paying the right amount at the right time prevents penalties and surprises.
Planning Makes It Less Painful
Quarterly estimates force you to look at your finances four times a year instead of ignoring taxes until April. Annoying but actually useful.
Some people open a separate savings account just for taxes. Money comes in, transfer your estimated tax percentage immediately. June rolls around, and the money’s sitting there ready to pay.
Keeps you from spending money that isn’t really yours. The government’s going to want its cut eventually. Treating it like it’s already gone prevents cash flow problems later.
Looking at numbers quarterly also helps you spot trends. Revenue dropping? Notice it in June and adjust, not the following March when it’s too late.
What You Actually Need to Do
Most NJ business owners making decent money need to pay quarterly estimated taxes. System’s clunky, deadlines are weird, but penalties for ignoring it are real.
Estimate conservatively. Better to overpay slightly than underpay and owe penalties. Pay on time, all four deadlines. Keep federal and New Jersey separate; they’re different agencies with different requirements.
Not sure what you’re supposed to do? Ask someone who handles business taxes and NJ requirements regularly. Sincoff & Sincoff, LLC helps business owners figure out quarterly estimates, avoid penalties, and stay compliant without overpaying.
Getting this right from the start saves penalties, interest, and headaches down the road. Your business has enough challenges. Preventable tax penalties shouldn’t be one of them.
Contact Sincoff & Sincoff, LLC to discuss your quarterly tax situation and make sure you’re handling it correctly. Better to get it right now than fix expensive mistakes later.
