Common Mistakes in Calculating Estimated Taxes

For freelancers, self-employed workers, and side hustlers, understanding estimated taxes is critical to staying in compliance with the IRS. Unlike W-2 employees who have taxes withheld from their paychecks, self-employed individuals must pay taxes themselves throughout the year—usually through quarterly estimated tax payments. Unfortunately, many people make common estimated tax errors that result in an underpayment penalty or surprise tax bill. In this guide, we’ll cover the most frequent mistakes and how to avoid them in 2025.

1. Skipping Quarterly Payments Entirely

One of the biggest and most common mistakes is not making estimated tax payments at all. If you expect to owe $1,000 or more in taxes for the year, the IRS requires you to make payments four times a year. Missing these deadlines can trigger an underpayment penalty, even if you pay everything you owe when you file your return.

To learn more about how to calculate and pay estimated taxes on time, check out Q3 Estimated Taxes Due in 2025 and the IRS’s guide on Estimated Taxes.

2. Underestimating Your Income

If your income is inconsistent or seasonal, you might be tempted to use conservative numbers when estimating your quarterly taxes. But underestimating your income can leave you short and facing a penalty. The IRS expects that you will base your payments on your best estimate of annual income, and it’s important to adjust each quarter as new income data comes in.

Form 1040-ES includes a worksheet that can help you project your income and tax liability. You can download it directly from the IRS: About Form 1040-ES.

3. Ignoring Self-Employment Tax

Another major mistake is forgetting to account for self-employment tax, which covers Social Security and Medicare. This tax is separate from federal income tax and is currently 15.3%. That’s a big chunk of your income, and it must be factored into your estimated payments. Failing to do so can result in an underpayment penalty, even if you’ve estimated your income tax correctly.

For more, see our guide: Common Estimated Tax Mistakes.

4. Not Deducting Eligible Business Expenses

Some taxpayers pay more than they should—or underestimate because they fail to consider deductible business expenses. Remember, you are taxed on your net income (your revenue minus expenses), not gross income. Failing to properly deduct expenses can lead to inaccurate payments and missed savings.

Explore common write-offs in our post on Freelancer Tax Deductions 2025.

5. Missing IRS Deadlines or Paying Incorrectly

Estimated taxes are due quarterly—typically in April, June, September, and the following January. Even if you pay the right amount, paying late can result in penalties. The IRS provides a range of options to pay electronically and securely. See IRS Online Payment 2025 Options Compared, or go straight to IRS Direct Pay to submit your payment.

6. Ignoring Safe Harbor Rules

There’s a way to avoid penalties even if your income projections are off: use the IRS “safe harbor” rules. If you pay at least 90% of your current year’s tax liability or 100% of last year’s (110% if your AGI is over $150,000), you won’t be penalized for underpayment. Choosing the right strategy depends on your income predictability. You can find more details on the IRS Estimated Tax Rules page.

7. Not Tracking Income or Setting Aside Funds

Finally, the foundation of a successful estimated tax strategy is solid bookkeeping. If you’re not tracking your income and expenses regularly, your estimates are likely to be wrong. Use bookkeeping software or a detailed spreadsheet, and set aside 25–30% of every payment you receive into a separate tax savings account. This ensures you’ll have enough funds ready when it’s time to pay.

Final Thoughts

By avoiding these estimated tax errors, you can minimize the chance of an underpayment penalty and reduce the stress of tax season. Staying proactive—by calculating accurately, keeping good records, and using both internal and IRS resources—will keep you in good standing with the IRS and on track financially.

Disclaimer

Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as legal, tax, or accounting advice. Tax situations are often complex and highly specific to the individual or business. You should contact a qualified tax expert directly to discuss your particular circumstances. Nothing herein is intended to, nor does it, create an attorney-client or advisor-client relationship. For individual guidance, please contact us directly.