# Worked Example: Quarterly Estimated Tax

**Scenario:** Sarah runs a freelance graphic design business as a sole proprietor.
She asks: "How much should I pay in estimated taxes for Q2?"

---

## Step 1: Pull YTD P&L from QuickBooks

QuickBooks P&L — January 1 through March 31, 2025:
- Gross income: USD 48,000
- Operating expenses: USD 12,500 (software, equipment, marketing)
- Net ordinary income: **USD 35,500**

---

## Step 2: Ask about prior payments

> "Have you made any estimated tax payments so far this year?"

Sarah: "I paid USD 2,000 in April for Q1."

---

## Step 3: Calculate

```
YTD net profit (Q1):        USD 35,500
Annualized net profit:      USD 35,500 × 4 = USD 142,000  ← rough annualization

Self-employment tax:
  SE base:   USD 142,000 × 92.35%  = USD 131,137
  SE tax:    USD 131,137 × 15.3%   = USD 20,064
  (Soc. Sec. cap at USD 176,100 — not hit, full rate applies)
  Deductible half:              = USD 10,032

Federal income tax:
  Adjusted net: USD 142,000 − USD 10,032 = USD 131,968
  Bracket: 22% (estimated; actual may vary with household income)
  Federal tax:  USD 131,968 × 22%     = USD 29,033

Total estimated annual liability:
  SE tax + federal = USD 20,064 + USD 29,033 = USD 49,097

Quarterly breakdown:
  Annual liability:       USD 49,097
  Payments made (Q1):    −USD 2,000
  Remaining:              USD 47,097 ÷ 3 remaining quarters = USD 15,699 per quarter
  Q2 payment due June 16: ~USD 15,700
```

---

## Step 4: Output delivered to Sarah

```
## Estimated tax summary — Q2 2025
Prepared April 24, 2025 · For review by your accountant · Not tax advice

**YTD net profit (Jan 1 – Mar 31):** USD 35,500
**Estimated annual net profit:** USD 142,000 (annualized from Q1 actual)
**Business type assumed:** Sole proprietor (confirm with accountant)

### Self-employment tax
USD 142,000 × 92.35% × 15.3% = USD 20,064
Deductible SE half: USD 10,032

### Federal income tax estimate
Adjusted net income: USD 131,968
Assumed bracket: 22% (confirm with accountant — household income affects this)
Federal income tax estimate: USD 29,033

### Total estimated annual liability
USD 20,064 + USD 29,033 = **USD 49,097**

### Q2 payment
Annual liability:      USD 49,097
Less Q1 payment made: −USD 2,000
Remaining:             USD 47,097 ÷ 3 quarters = **~USD 15,700 due by June 16, 2025**

### Safe harbor note
To avoid underpayment penalty: ensure total 2025 payments ≥ 100% of your 2024
tax (or 110% if 2024 AGI > USD 150,000). Ask your accountant for that figure.

### Assumptions — review with your accountant
- Federal bracket: 22% (effective rate may differ)
- Business structure: sole proprietor (assumed)
- Annualization: Q1 × 4 — income may be seasonal
- State taxes: not included
- QBI deduction (up to 20%): not applied — could reduce federal tax significantly
- Retirement contributions, home office, vehicle: not applied
```