There is a moment, every year, in roughly 30% of small business tax meetings: the client realizes they owe a number they did not expect. We've seen it land at $4,000. We've seen it land at $400,000. The pain isn't really the number — it's the surprise.
Quarterly tax projections exist for one reason: to make sure the surprise never happens.
What a projection actually is
A tax projection is a mid-year (or quarterly) estimate of what your tax bill will look like at year-end given how the year is actually going. It's not a return. It doesn't get filed. Its job is to answer one question: based on what we know today, what should you set aside for taxes, and is there anything we should change between now and December?
The output of a projection is usually a one-page summary:
- Projected federal and state taxable income
- Projected federal and state tax owed
- Required quarterly estimate payments to avoid underpayment penalty
- What's already been paid (W-2 withholding, prior estimates)
- Net cash you should be setting aside
- Specific moves we'd consider (retirement contributions, equipment timing, entity restructuring) before year-end
The estimated payment problem
If you don't pay enough tax during the year — through W-2 withholding or quarterly estimates — the IRS adds an underpayment penalty. The 2026 underpayment penalty rate is currently around 8%. That's not trivial, especially when your alternative was just paying the same money on April 15 anyway.
Safe harbor rules let you escape the penalty if you pay either 100% of last year's tax (110% if your AGI is over $150K) or 90% of this year's tax through estimates. The 100%-of-last-year rule is the easy one — set up four equal payments and you're fine, no math required.
The math gets interesting when this year is meaningfully better or worse than last year. That's when projections earn their keep.
When projections matter most
Some clients don't really need projections. A salaried W-2 employee with no side income probably doesn't. The cases where projections pay for themselves many times over:
- Profitable S-Corps and partnerships. Owner pass-through income surprises are the #1 source of "I owe what?" moments.
- Businesses with growing revenue. Last year's safe harbor estimates are too low. By April you're behind, and underpayment penalties have been accruing all year.
- Businesses with shrinking revenue. You're paying estimates against last year's bigger income. You might have a refund coming and not know it.
- Owners considering a big move — selling equipment, taking a large distribution, converting to a Roth, exercising options.
- Multi-state taxpayers where credits and apportionment can swing the bill.
Our cadence
For business clients, we typically run projections in late October or early November. That's the sweet spot: the year is mostly known, but there's still time to make the moves that matter — accelerate or defer income, fund retirement, time equipment purchases, adjust owner compensation, restructure if needed.
For high-volatility businesses (commission-based, seasonal, large M&A activity), we'll run them quarterly. The expense is small compared to a five-figure surprise — and the moves that can change the outcome are still on the table.
The cheapest tax planning is the kind that happens in October. By March 15, almost nothing is left to plan — you're just filing what already happened.
If your last few tax outcomes have surprised you in either direction, let's talk. Projections are part of every ongoing TicTax engagement, not a separate add-on.