Think You Had a Great First Quarter? The IRS Thinks So Too.
A surprise commercial real estate closing. A surge in cash-pay cosmetic procedures. A profitable investment sale.
If your income jumped significantly during the first part of the year, there's something important you need to know:
The IRS expects its share now—not next April.
Many business owners assume they can wait until tax season to settle the difference. Unfortunately, underpayment penalties can start accumulating long before then.
The good news? There are strategies that allow you to pay based on what you've actually earned instead of guessing.
Let's break down what you need to know before the June 15 estimated tax deadline.
Do I Need to Increase My June 15 Estimated Tax Payment?
Not necessarily.
The IRS generally allows taxpayers to avoid penalties if they satisfy one of the following Safe Harbor rules:
Safe HarborWho It's Best ForPay 100% of last year's tax (110% if AGI exceeded $150,000)Taxpayers with temporary income spikesPay 90% of current year's total taxIndividuals with predictable income growthAnnualized Income Installment MethodReal estate professionals, investors, seasonal businesses, and fluctuating earners
Important for High-Income Earners
If your Adjusted Gross Income exceeded $150,000 last year ($75,000 if Married Filing Separately), your Safe Harbor threshold increases to 110% of last year's tax liability, not 100%.
The Strategy Many High Earners Miss
The Annualized Income Installment Method
Most people assume the IRS expects income to be earned evenly throughout the year.
But what if that's not true?
What if:
- You closed a major deal in March
- Your practice experienced a temporary surge in procedures
- You sold an investment property
- Your business is seasonal
The Annualized Income Installment Method allows you to calculate payments based on actual income earned during each period rather than assuming equal earnings every quarter.
For many taxpayers, this can significantly reduce penalties and improve cash flow management.
Real Estate Example: When One Big Closing Changes Everything
Imagine this scenario:
2025 Tax Liability: $30,000
Because income exceeded the Safe Harbor threshold, the required target becomes:
110% × $30,000 = $33,000
Now suppose a real estate agent earns:
- Q1 Income: $80,000
- Q2 Income through May: $20,000
Most taxpayers would simply divide estimated taxes into four equal payments.
The problem?
The IRS sees that large Q1 commission and expects payments that reflect the income already received.
Using the Annualized Income Method allows the payment schedule to align with actual earnings, reducing penalty exposure and improving accuracy.
Action Step: Pull your Profit & Loss statement through May 31 and compare your actual income against the assumption that you've earned 25% of annual income per quarter.
Medical Professionals: Why Your W-2 May Not Be Enough
Many physicians believe their payroll withholding covers everything.
That may be true for hospital wages.
It is not true for:
- Locum tenens work
- Consulting income
- Cash-pay procedures
- Side practices
- Owner distributions
Example
A physician earns:
- $350,000 W-2 income
- $80,000 expected side-practice income
But by March, the side practice already generated $45,000 due to increased patient demand.
While the hospital withholding continues normally, it may not be sufficient to cover the accelerated growth in self-employment income.
The result?
A tax shortfall that should be addressed before June 15.
Pro Tip
Instead of making separate estimated tax payments, many physicians can increase withholding through their employer.
The IRS generally treats withholding as if it occurred evenly throughout the year, which can provide additional flexibility and reduce penalty risk.
Can I Lower My Q2 Payment If Business Slowed Down?
Yes.
The Annualized Income Method works both ways.
If you made a large payment after a profitable Q1 and then experienced a slow Q2, your required payment may decrease.
Example
An investor sells a property in Q1 and pays estimated taxes accordingly.
Then:
- No additional sales occur in Q2
- Renovations are delayed
- Income drops to zero
Using annualized calculations may justify a lower Q2 payment.
However, taxpayers using this approach should generally file Form 2210 Schedule AI with their return to demonstrate that income was not earned evenly throughout the year.
Without it, the IRS may automatically assume equal quarterly income and assess penalties.
Three Steps to Complete Before June 15
✓ Review Your Numbers
Run a year-to-date Profit & Loss statement through May 31.
✓ Calculate Your Safe Harbor
Determine whether:
- 110% of last year's tax, or
- 90% of this year's projected tax
results in the lower required payment.
✓ Submit Your Payment
Make your estimated payment through EFTPS before June 15.
Even a partial payment can reduce potential penalties.
Estimated Tax Deadlines for 2026
PaymentCovers Income EarnedDue DateQ1January 1 – March 31April 15Q2April 1 – May 31June 15Q3June 1 – August 31September 15Q4September 1 – December 31January 15
Important: Q2 covers only two months of income (April and May), not three. Many taxpayers overlook this and unintentionally underpay.
Final Warning for Practice Owners and S-Corp Owners
Payroll withholding only applies to wages.
It does not apply to:
- Owner draws
- Distributions
- Profit distributions
- Investment withdrawals
For example, if an S-Corporation owner takes a $50,000 distribution in March, taxes are generally not withheld from that payment.
That income may create an estimated tax obligation that should be addressed by the June 15 deadline.
Don't Let a Strong Q1 Create an Expensive Tax Surprise
A profitable quarter is great news.
Unexpected IRS penalties are not.
If your income has changed significantly this year—or if you're unsure whether your June payment is sufficient—now is the time to review your numbers.
The right strategy could help you minimize penalties, improve cash flow, and avoid surprises next tax season.
Need Help Determining Your June 15 Payment?
The team at RSK Tax & Consulting helps business owners, real estate professionals, medical providers, and investors create proactive tax strategies that keep more money working for them.
Schedule a consultation today and make sure your tax plan is keeping up with your success.
