You Just Sent the IRS a Check. Do You Know If It Was the Right Amount?

A few days ago, on September 15, you sent the IRS an estimated tax payment. The third one of the year.

Quick question. Was it the right amount?

Most owners can't answer that. They paid what their accountant penciled in back in the spring, or they took last year's tax and split it four ways, or - let's be honest - they guessed at a number that felt about right. The check cleared. Nobody knows if it was too much, too little, or close.

Let me walk through how this is supposed to work, because "know what you owe" applies to the IRS four times a year, not just in April.

The IRS Wants Its Money As You Go

Income tax is pay-as-you-go. The IRS doesn't wait until April for a year's worth of tax. It wants the money in four installments as you earn it, due April 15, June 15, September 15, and January 15. When you're an employee, withholding handles that in the background. When you own the practice, it's on you.

And here's the part owners miss. If you don't pay enough as you go, you owe a penalty - even if you pay every dollar by April. Paying in full but late still counts as underpaying the quarters. The finish line isn't April 15. It's four checkpoints spread across the year.

The Number That Keeps You Penalty-Free

The IRS gives you a way to stay safe, and they literally call it a safe harbor. Land on it and you owe no underpayment penalty, no matter how your year shakes out.

Here's the safe harbor in plain English. Pay in at least the smaller of these two:

• 90% of this year's total tax, or

• 100% of last year's total tax - bumped to 110% if your income last year was over $150,000.

Most practice owners are over that $150,000 line, so for most of you the clean, sleep-at-night number is 110% of last year's tax, paid in four even installments. Do that and the penalty can't touch you, even if you have a monster year.

The deeper move is to fund those payments out of a tax account you've been setting money aside into all year, so writing the check never stings. That's the set-aside habit I've written about before.

The Penalty Isn't a Slap on the Wrist Anymore

For a long stretch, the underpayment penalty was cheap enough to ignore. Not anymore.

It isn't a flat fine. It's interest, reset every quarter, and right now it's running at 7%, compounded daily. A few years ago it was 3%. In 2024 it sat at 8% the whole year. Underpaying used to be a cheap loan from the government. Today it's expensive money, and it compounds every single day you're short.

But "Safe" Doesn't Mean "Right"

Here's where owners can get a false sense of security. Clearing the safe harbor protects you from the penalty. It does not mean you paid the right amount. Those are two different things, and the gap between them is where the surprises live.

Two ways to be off even when you're penalty-safe:

You had a big year. You paid 110% of last year, so no penalty. But this year's income blew past last year's, so your real tax is higher, and you'll still owe a pile in April. You're protected from the penalty, but ambushed by the balance.

You had a down year. You dutifully paid last year's bigger number and overshot. Now your cash is parked at the IRS for months, doing nothing for your practice. The government does pay interest on overpayments these days, but it's taxable, it only kicks in if your refund is delayed, and you wait until after you file to see any of it. Your money is still stuck.

Neither one is a catastrophe. Both are avoidable. And you avoid them the same way. You check.

Right Now Is the Checkpoint

Here's why I'm raising this in September instead of April.

You just made your third payment, which means you have three quarters of real numbers sitting in front of you. Not a spring guess. This is the best moment all year to project where the year is landing, line that up against what you've already paid in, and true up the final payment, the one due January 15.

Do that and you walk into tax season knowing your number instead of bracing for it. You either fix a shortfall while there's still a payment left to adjust, or you quit overpaying and keep your own cash working in the practice. That's the whole game we've been on all month, and it's what a real tax strategy is built to do. Know what you owe, early enough to do something about it.

Not Sure If Your Number Was Right?

If you sent that check on the 15th and you're not sure it was the right amount, let's pressure-test it. Click here to Book Your Financial Clarity Call and we'll look at where your year is landing and what your last payment should be.

To your abundant practice,

Eric Levenhagen, CPA CTS

Eric Levenhagen, CPA CTS, is the only financial consultant who helps private practice optometrists improve the financial health of their practice with a simple process called Financial Harmony, designed to reduce their taxes and increase their after-tax profits so they can reach their personal goals faster.

ProWise Tax & Accounting LLC Disclaimer: This blog is intended for educational purposes and provides general information about tax, accounting, and small business topics. It is not professional advice, and using this blog does not create a client/CPA relationship between you and ProWise Tax & Accounting, LLC dba ProWise Financial Consulting, or its owners and employees. Blog posts are based on tax rules in effect at the time they are written, and older posts are not always updated for changes. Tax rules change frequently. Always check with your CPA or accountant regarding the most current rules and how they apply to your specific situation.