What if my income has jumped?
Most people pay just over 100 percent of their prior-year income tax liability, as long as their business income doesn’t change dramatically. But even if you pay 100 percent (or 110 percent if your income is high enough) of your prior year’s income tax, if your business income has increased substantially, you may discover that you still owe more money to the IRS when you prepare your income tax return, even though you are exempt from the estimated tax underpayment penalty.
If you find yourself in this situation, you may be tempted to pay additional estimated taxes ahead of time, to avoid a nasty bill at tax time. But that probably isn’t a good idea because you’re also reducing your working capital, so you lose the chance to invest these monies until your income tax return is due.
Here’s a better idea: Rather than sending money to the IRS sooner than you have to, simply make sure you set aside enough money to pay your tax bill when you file in April.