You formed your S-Corp to save on taxes. That was the smart move. But here's what catches most Denver business owners off guard: you're still on the hook for quarterly estimated tax payments. Miss one of these deadlines and you're looking at penalties that wipe out your tax savings faster than you can say "reasonable compensation."
The IRS doesn't wait until April 15th to collect. They want their money throughout the year. And if you're an S-Corp owner taking distributions, you need to understand this system inside and out.
S-Corps are pass-through entities. The corporation doesn't pay federal income tax. Instead, profits flow through to your personal return. You report them on your 1040 and pay tax on your share of the profits, not just your salary.
This creates a problem. Your employer withholds taxes from your W-2 wages. But nobody withholds taxes from your distributions. The IRS expects you to pay those taxes quarterly through estimated tax payments.
The IRS won't penalize you for underpayment if you meet one of these safe harbor thresholds. First option: pay 90% of your current year tax liability. Second option: pay 100% of last year's tax liability. If your adjusted gross income exceeded $150,000 last year, that second threshold jumps to 110%.
Most Denver business CPAs recommend using the prior year safe harbor method. It's predictable. You know exactly what you owe. No surprises.
The IRS provides detailed guidance on estimated tax requirements in Publication 505. Read it. Understanding these rules protects you from penalties that can run thousands of dollars.
Mark these dates on your calendar right now. Q1 payment is due April 15th. Q2 payment is due June 15th. Q3 payment is due September 15th. Q4 payment is due January 15th of the following year.
Notice something odd? The quarters aren't equal. Q1 covers January through March. Q2 covers April and May only. Q3 covers June through August. Q4 covers September through December. The IRS calendar makes no sense, but those are the rules.
The IRS charges interest on late payments. They also assess an underpayment penalty. The penalty rate changes quarterly based on the federal short-term rate plus 3%. For 2026, we're looking at around 8% annually.
That penalty compounds. If you owe $10,000 in estimated taxes and pay three months late, you're looking at roughly $200 in penalties and interest. Small potatoes. But do this four times a year for several years and you've thrown away thousands.
A qualified tax accountant near Denver can help you calculate the exact penalty if you've already missed payments. Sometimes it makes sense to just pay and move on. Other times you can request penalty abatement for reasonable cause.
Start with last year's tax return. Look at line 24 on your Form 1040. That's your total tax. Subtract any withholding from W-2 wages. Divide the remainder by four. That's your quarterly estimated tax payment under the safe harbor method.
Let's walk through an example. You paid $60,000 in total tax last year. Your S-Corp withholds $20,000 annually from your W-2 wages. Subtract $20,000 from $60,000. You get $40,000. Divide by four. Your quarterly estimated payment is $10,000.
What if your income jumped this year? Maybe you landed a huge contract. Or your business is growing faster than expected. The safe harbor method might leave you with a big tax bill in April.
You can adjust your estimated payments mid-year. Calculate your projected annual income. Estimate your tax liability. Subtract withholding. Divide by the remaining quarters. Make larger payments going forward.
This is where working with a fractional CFO focused on tax strategy pays for itself. They run quarterly projections and adjust your estimated payments to match your actual income. No surprises. No giant April tax bill.
The easiest payment method is IRS Direct Pay at IRS.gov/payments. Link it directly to your bank account. Schedule payments in advance. Set it and forget it.
You can also pay by credit card through approved payment processors. But they charge convenience fees around 2%. That's $200 on a $10,000 payment. Not worth it unless you're getting serious credit card rewards.
The IRS mails you payment vouchers if you made estimated payments last year. These come on Form 1040-ES. Fill them out and mail them with a check. But who wants to deal with paper checks in 2026?
Electronic payments are faster, safer, and easier to track. You get instant confirmation. No waiting for checks to clear. No worrying about lost mail.
The Form 1040-ES instructions include worksheets for calculating your estimated tax. Work through them once so you understand the logic. Then automate your payments electronically.
Don't forget about Colorado. The state wants quarterly estimated payments too. Colorado's tax rate is a flat 4.4% for 2026. Calculate your Colorado estimated tax the same way you did federal.
Colorado's payment deadlines match the federal dates: April 15th, June 15th, September 15th, and January 15th. Make your Colorado payments through Revenue Online.
Some Denver metro jurisdictions impose occupational privilege taxes. These are flat monthly or annual fees. They're not based on income. Denver proper doesn't have one, but check your specific city.
Your bookkeeping service should track which jurisdictions require these payments. Missing them creates hassles with business license renewals.
Here's a critical concept: your S-Corp must pay you reasonable compensation through W-2 wages. You can't just take everything as distributions to avoid payroll taxes. The IRS knows this game and they're cracking down.
Your W-2 wages have taxes withheld. Those withholdings count toward your total tax liability. The more you take as salary, the less you need to pay in estimated taxes. But increase your salary too much and you pay more in payroll taxes.
This is the art of S-Corp tax strategy. You want enough salary to satisfy the IRS reasonable compensation requirement. But not so much that you're paying excess payroll taxes. The sweet spot varies by industry and income level.
A Denver business owner making $200,000 in S-Corp profits might take $80,000 as W-2 wages and $120,000 as distributions. An owner making $500,000 might split it $150,000 salary and $350,000 distributions. There's no perfect formula. It depends on your specific situation.
Professional guidance from a small business tax specialist is worth its weight in gold here. They benchmark reasonable compensation based on your industry, role, and geographic market. They document the rationale. That documentation protects you if the IRS ever questions your compensation structure.
Mistake number one: treating all four quarters equally when your income is seasonal. If you earn 70% of your income in Q4, you shouldn't pay 25% of your estimated tax in Q1. The IRS allows you to pay based on actual income using the annualized income installment method.
Mistake number two: forgetting about self-employment tax on your W-2 wages. Your S-Corp pays half as the employer. But that employer portion is a deductible business expense. Account for this when calculating estimated taxes.
You sold a rental property. You took a big distribution. You had an unexpectedly profitable year. These events create additional tax liability. Adjust your estimated payments immediately or face penalties.
Set up a quarterly tax review meeting with your tax advisor. Thirty minutes every three months keeps you on track. Your tax return preparation becomes easier too because there are no surprises.
Quarterly estimated taxes are cash flow killers if you don't plan for them. You need $40,000 sitting in your account ready to pay the IRS. That's money you can't use for inventory, equipment, or payroll.
Smart business owners set aside 30-40% of every distribution into a separate tax savings account. When April, June, September, and January roll around, the money is sitting there waiting. No scrambling. No payment plans. No penalties.
Open a dedicated business savings account. Label it "Tax Reserve." Every time you take a distribution, immediately transfer 35% to this account. Don't touch it except for tax payments.
This discipline transforms your relationship with estimated taxes. They stop being this scary quarterly obligation. They become a predictable transfer from savings. Your stress drops. Your sleep improves.
Integration between your bookkeeping and tax reduction planning makes this automatic. Your bookkeeper tracks distributions. Your tax advisor calculates the reserve percentage. You just follow the system.
The IRS calculates underpayment penalties using Form 2210. It's complex. Most tax software handles it automatically when you file your return. But understanding the basics helps you avoid penalties in the first place.
The penalty applies separately to each quarter. If you underpaid Q1 but overpaid Q2, the Q2 overpayment doesn't eliminate the Q1 penalty. Each quarter stands alone.
If you've never had penalties before, the IRS offers first-time penalty abatement. Call them after you file your return. Explain it was your first year as an S-Corp. Request abatement based on your clean compliance history. They'll often waive the penalty.
This only works once. Don't waste it on a small penalty. But if you're facing $2,000+ in penalties, absolutely request abatement. The IRS provides guidance on penalty relief in their penalty relief resources.
November and December are when you plan for next year's estimated taxes. Your tax advisor projects your annual income. They calculate your expected tax liability. They give you the quarterly payment amounts for next year.
Schedule these payments in January before you get busy. Four calendar reminders. Four electronic payment confirmations set up in advance. Done.
Year-end planning also optimizes your tax reduction strategies. Maybe you need to increase your retirement contributions. Perhaps you should buy equipment before December 31st to capture Section 179 deductions.
These strategies affect your estimated tax calculations for the current year and next year. Everything connects. This is why comprehensive tax planning beats random tax tips. You need a coordinated strategy that looks at your complete financial picture.
Can you handle estimated taxes yourself? Sure. Is it the best use of your time? Probably not. You're running a business. Let your CPA handle the calculations, schedules, and coordination with your bookkeeper.
Professional help pays for itself through avoided penalties, optimized payment timing, and peace of mind. You focus on growing your business. Your tax team handles the compliance.
The investment in professional tax planning and strategy typically saves 3-5 times what you spend. That's not marketing hype. That's math. A good tax advisor finds deductions you missed, structures your compensation correctly, and times your income to minimize taxes.
Denver S-Corp owners deal with federal estimated taxes, Colorado estimated taxes, and various local requirements. Keeping all these balls in the air while running your business is hard. Get help. It's worth it.
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