If you wait until the end of the year to pay all your taxes, the government will charge you an underpayment penalty. To avoid this, you need to make tax payments throughout the year on four specific dates.

The government basically wants you to predict your future income, deductions, and tax credits, calculate what you'll owe (even though tax laws keep changing), and then pay estimated taxes four times a year. They call this "quarterly" even though the payment dates aren't exactly three months apart.

How Do You Avoid This "Crystal Ball" Problem?

Two Ways:

Option 1: The Safe Harbor Rule

This is what most people use. It works if your income this year will be at least as much as last year's.

Here's what to do: Look at last year's tax return and find your "total tax" line (before any payments were applied). Pay at least that same amount this year, split evenly across the four payment dates. Even if you end up owing more tax at the end of the year, you won't get a penalty.

Special rules:

• If your income is high, you need to pay 110% of last year's tax instead of 100%

• If your income is over $1 million, you can't use this rule for California taxes

• Money withheld from paychecks (yours or your spouse's) counts as being paid evenly through the year

When Are Payments Due?

April 15, June 15, September 15, and January 15. If any date falls on a weekend or holiday, pay by the next business day.

Notice these aren't really "quarterly"—they're not every three months. If you miss a payment, make it as soon as possible since penalties are calculated daily.

Option 2: The Annualized Income Method

This works well if most of your income comes at the end of the year.

For each payment date, look at your actual income, deductions, and credits up to the last day of the previous month. For example, for the June 15th payment, use your January through May numbers.

Take those 5 months of information, multiply by 12/5 to estimate your full year, calculate the tax, then multiply by 50% to find how much you need to have paid by June 15th (minus any earlier payments you already made).

You can use different methods for each payment date—whatever works better for your situation.

California's Twist

California doesn't require equal payments. Instead of 25% each quarter, they want 30%, 40%, 0%, and 30%. But they do allow the same exceptions as federal taxes (at least for incomes under $1 million).