If you’re making quarterly estimated tax payments, missing a deadline can be costly. The IRS currently charges a 7 percent penalty for underpayments—and since penalties aren’t deductible, the real cost can feel closer to 11 percent.

But here’s good news: strategic withholding can often help you avoid or erase those penalties—even late in the year.

Here’s why: while estimated tax payments are due on set dates (April 15, June 16, September 15, and January 15), withholding is treated differently. The IRS considers tax withheld from W-2 wages or IRA distributions as if paid evenly across all four quarters—or on the actual date withheld, if you so choose.

This means that if you’re short on estimated payments for the year, you may still have options:

• Have your S or C corporation pay you a year-end bonus and withhold additional taxes (though be mindful of added payroll taxes).
• Adjust withholding from a W-2 job, and document the timing for quarterly allocation or direct identification.
• Use an IRA “rollover and replace” strategy: take a distribution, withhold 100 percent for taxes, then redeposit the funds within 60 days to avoid tax on the withdrawal.

Each of the methods can help you meet IRS safe harbor rules and avoid penalties—often with more flexibility than standard estimated tax payments.

If you want to discuss the withholding strategy, please get in touch with us at hello@agfintax.com.