Why Quarterly Tax Payments Matter (And How to Avoid IRS Penalties)

If you’re a real estate investor, especially one running short-term rentals, flipping houses, or earning income outside of W-2 wages, you’re likely required to make estimated quarterly tax payments.

Skipping them, or miscalculating, can lead to costly IRS penalties, even if you pay in full by April. Let’s break down why quarterly payments matter, who must pay them, and how real estate investors can stay compliant without stress.

Why Does the IRS Require Quarterly Payments?

The U.S. tax system is “pay as you go.” That means you’re expected to pay taxes on your income as you earn it throughout the year. For W-2 employees, this happens automatically through paycheck withholdings.

But if you:

• Rent out short-term properties (Airbnb/VRBO)

• Flip houses

• Hold rental properties generating passive income

• Have real estate agent commissions or wholesaling income

…then the IRS expects you to proactively submit tax payments on a quarterly basis.

Failing to do so can trigger underpayment penalties, even if you don’t owe anything when you file.

Who Needs to Pay Quarterly Taxes?

You’re generally required to make estimated tax payments if:

• You expect to owe at least $1,000 in taxes after subtracting withholdings and credits

• And your withholdings and credits will be less than the smaller of:

  • 90% of your current year’s tax

  • 100% of last year’s tax (110% if AGI > $150K)

This rule applies to:

• STR hosts earning untaxed income via Airbnb, VRBO, or direct bookings

• House flippers receiving large lump-sum profits on sales

• Real estate agents or wholesalers with 1099 commission income

• Rental property investors receiving monthly income with no withholdings

• S-Corp owners not withholding enough from their W-2 salaries

How Are Quarterly Payments Calculated?

You can use one of two methods:

1. Safe Harbor Method

Pay 100% (or 110%) of your prior year’s tax liability, split evenly across four payments. Easiest method for those with variable income or large swings in profitability.

2. Actual Method

Estimate your current year’s income and deductions and pay at least 90% of that amount. Offers more accuracy if your income is lower this year or you’ve added big deductions (e.g. depreciation, cost segregation).

When Are Quarterly Payments Due?

Quarterly payments are due on:

• April 15

• June 15

• September 15

• January 15 (of the following year)

If the due date falls on a weekend or holiday, the IRS pushes it to the next business day.

Final Thoughts

Quarterly taxes may not be fun, but they’re essential to avoid IRS penalties and manage your cash flow effectively, especially if your real estate income isn’t subject to withholding.

The good news? With a plan in place, they become a routine part of your financial strategy, not a painful surprise.

Want Help Setting Up a Smart Tax Plan?

Book a free strategy call and we’ll calculate your payments, optimize your deductions, and keep you compliant all year long.