Nobody withholds taxes from an owner-operator’s settlements. No employer is sending money to the IRS on your behalf every week. If you don’t do it yourself, the whole year’s bill shows up at once in April, usually with a penalty attached.
Quarterly estimated taxes aren’t complicated. The hard part isn’t the math. It’s making sure the cash is still in the bank when the payment is due.
Why You Owe More Than You Think
As a self-employed owner-operator, you owe two kinds of federal tax on your profit:
- Income tax, at your regular rate.
- Self-employment tax, which is 15.3%: 12.4% for Social Security and 2.9% for Medicare (IRS). It’s the employee’s and the employer’s share combined, because you’re both.
Self-employment tax is figured on 92.35% of your net profit, and you can deduct half of it when working out your income tax. Even so, it’s often the piece that surprises new owner-operators most. A company driver only ever saw half of it come out of their paycheck.
Who Has to Pay, and When
You generally have to make estimated payments if you expect to owe at least $1,000 in federal tax for the year (IRS Publication 505). The four due dates are (IRS):
| Income earned | Payment due |
|---|---|
| January 1 – March 31 | April 15 |
| April 1 – May 31 | June 15 |
| June 1 – August 31 | September 15 |
| September 1 – December 31 | January 15 of the next year |
If a due date falls on a weekend or a legal holiday, the payment is on time the next business day. Notice the periods aren’t equal. The June payment covers only two months of income, and the January payment covers four.
How Much Is Enough
The IRS generally won’t charge an underpayment penalty if what you paid during the year, through estimated payments and any withholding, adds up to at least one of these (IRS Publication 505):
- 90% of this year’s tax, or
- 100% of last year’s tax, or
- 110% of last year’s tax if your adjusted gross income last year was over $150,000 ($75,000 if married filing separately)
Your CPA works out which target makes sense for you and what each payment should be. That’s their job. Yours is making sure the money is there.
The Bookkeeping Side: Setting It Aside
Most tax trouble for owner-operators isn’t a math problem. It’s a cash problem. The settlement comes in, a repair bill goes out, and by June 15 the tax money has turned into tires.
A few habits fix most of it:
- Use a separate tax account. Move a set portion of every settlement into it the day the settlement lands. Ask your CPA what portion fits your numbers.
- Don’t count that account as spending money. If it’s in your operating account, it’ll get spent.
- Book it correctly. Moving money into a tax savings account isn’t an expense. It’s cash moving from one account to another. For a sole proprietor or single-member LLC, the federal income tax payment itself isn’t a business expense either. It’s an owner’s draw, so it doesn’t belong on your P&L.
That last point matters. If tax payments get recorded as a business expense, your profit looks lower than it really is. Your cost per mile looks higher too, so you price loads against a number that isn’t real.
Current Books Mean Better Estimates
A CPA can only estimate from the numbers they’re given. If your books are a shoebox until April, the quarterly payments are a guess. They’re often the same amount four times, whether you had a great quarter or a terrible one.
With books closed every month, your CPA can see your actual profit each quarter and adjust. That matters most in years with big changes: a new truck and its depreciation, a switch from leased-on to your own authority, or a slow season. It’s the same gap we wrote about in Why Your CPA Doesn’t Know Your Cost Per Mile: the CPA handles the tax, and monthly bookkeeping supplies the numbers. If paying the quarterly bill keeps squeezing you, see Cash Flow for Truckers.
Your business setup also matters. An S corporation, for example, handles owner pay and taxes differently. This post covers the common sole-proprietor and single-member LLC case. Your CPA can tell you what applies to you.
Know Your Numbers Before the IRS Does
Start with your real profit per mile. Our free Cost-Per-Mile Calculator takes about ten minutes. Want books your CPA can actually build an estimate from? Talk to us.