Understanding how to estimate business taxes as a small business owner can be overwhelming, especially when unexpected tax bills hit at the worst time. Jamie Trull, CPA and financial coach, simplify tax estimation with a straightforward method using your previous year’s tax return. In this blog, we’ll walk through Jamie’s strategy for calculating taxes, planning ahead, and using her Profit Plan to prepare for growth.

Avoid Surprises with Jamie Trull’s Quick Tax Planning Strategy

By following Jamie’s advice, you can accurately estimate your tax obligations, avoid penalties, and ensure your business runs smoothly throughout the year.

Why Tax Planning Is Essential for Small Business Owners

Unexpected tax bills can put a strain on your business finances. Without proper planning, you risk underpaying estimated taxes throughout the year, leading to penalties—or overpaying and giving the government an interest-free loan. Jamie stresses the importance of staying ahead of taxes with regular planning and quarterly estimates to avoid surprises.

Tax estimation is also a critical part of profit planning. When you know how much to set aside for taxes, you can make better decisions about how much to pay yourself, how much to reinvest in your business, and how much to save for future goals.

Jamie’s Simple 3-Step Tax Estimation Process

Jamie offers a quick and effective way to estimate your taxes using three key numbers from your previous year’s tax return. This method gives you a clear picture of what you might owe—without the headache of complex calculations.

Step 1: Gather Your Tax Information

Start by pulling out your prior year’s tax return and locating these three numbers:

• Total income: This represents all income before deductions.
• Taxable income: This is the income that was subject to taxes after applying deductions and exemptions.
• Total tax: This includes federal income tax, Social Security, Medicare, and self-employment taxes.

These numbers are often found on Lines 9, 15, and 24 of recent tax returns, but the line numbers can vary—so look for the labels instead.

BONUS TIP: Get Jamie’s Guide to Reducing Taxes for Business Owners at  https://jamietrull.com/taxsavings 

Step 2: Calculate Your Effective Tax Rate

Using the numbers above, divide your total tax by your total income to find your effective tax rate.

Example:

• Total income: $125,000
• Total tax paid: $15,000

The calculation:

• $15,000 ÷ $125,000 = 12% effective tax rate

This rate reflects how much tax you paid, on average, across your entire income. Many business owners are surprised to see their effective tax rate is lower than expected due to deductions like the standard deduction or the qualified business income deduction.

Step 3: Estimate Taxes for the Current Year

If your income is expected to stay the same or decrease slightly this year, you can use the previous year’s effective tax rate to estimate your taxes.

However, if you expect your income to increase, Jamie recommends adjusting your estimate to account for additional income and higher tax brackets.

Handling Income Growth with IRS Tax Brackets

Jamie walks through how to plan for increased income. Here’s how:

1. Look up the IRS tax brackets for the current year.
2. Find where your taxable income falls within the brackets.

Example:
If your taxable income last year was $90,000, you were in the 22% bracket. If you expect to make more this year, the additional income will be taxed at 22% until it reaches the next bracket at 24%.

Don’t Forget About Self-Employment Taxes

Jamie also highlights the importance of self-employment taxes, which cover Social Security and Medicare. These taxes are often overlooked but can add up quickly.

• Self-employment tax rate: 15.3% (12.4% for Social Security and 2.9% for Medicare)
• Social Security cap: $168,600 for 2024

Once your income exceeds $168,600, Social Security tax no longer applies, though Medicare tax continues at 2.9%.

Making Quarterly Estimated Payments

To avoid penalties, Jamie recommends making quarterly estimated payments. The IRS has a safe harbor rule to help you avoid penalties:

• Pay at least 100% of last year’s taxes (or 110% for high-income earners).
• High earners (married couples filing jointly with income over $150,000) must pay 110% of last year’s tax liability.

This rule ensures you won’t incur penalties, even if your income increases significantly.

Jamie’s Profit Planning Strategy for Taxes

Jamie uses a profit planning strategy to stay on top of her taxes. Here’s how it works:

1. Set aside a percentage of profits throughout the year based on your tax estimate.
2. Keep tax savings in a separate account to avoid spending them accidentally.
3. Pay the minimum required quarterly taxes and save the rest for year-end.

This way, Jamie avoids giving the IRS an interest-free loan but ensures she has enough set aside when taxes are due.

If you want to learn more about managing your money effectively, Jamie offers a Profit Plan template. You can grab it here: ➡️ Jamie’s Profit Plan Template

Using Profit and Loss Statements to Stay Organized

If you don’t know your current profits or need help creating a profit and loss (P&L) statement, Jamie has a step-by-step video tutorial that walks you through the process using Google Sheets.

You can also get Jamie’s Profit and Loss Dashboard Template here: ➡️ Profit and Loss Template

Final Thoughts on Estimating Your Business Taxes

Estimating taxes doesn’t have to be stressful. By following Jamie’s simple strategy, you can plan ahead, avoid penalties, and gain better control over your finances. Whether your income stays the same or grows, these steps will help you calculate your tax obligations and save accordingly.

For a deeper dive into profit planning and money management, check out Jamie’s templates and dashboards to simplify your finances.

Watch the original video here:

3 Simple Numbers to Estimate Your Business Taxes FAST!

Avoid Surprises at Tax Time

Have you ever left a meeting with your accountant and felt like you just got your heart ripped out when they told you what your total taxes owed was? Now, as much as I love surprises, those are not the surprises that I want to get. If you feel the same, then it’s probably worth it to you to put some planning in place ahead of time to try and estimate out what your tax bill is going to be.

But how do you do that without spending hours of your time? In this video, we’re not diving into all the nitty-gritty details. Instead, I want to give you a quick and dirty calculation that you can do on your own using just three numbers from your prior-year tax return.

Plus, if you stick around until the end of this video, I’m going to share with you my personal system for making sure I’m never unprepared when tax season comes. And if you want even more help with your taxes, I have a Get Ready for Taxes Bundle linked below to help you prepare quickly.

Step 1: Gather Last Year’s Tax Return

Like I said, this is the quick way to estimate taxes. If you want to go deeper into all the numbers, definitely check out my friend Hannah’s video. She walks through a very thorough method for calculating self-employment taxes.

For now, grab your tax return from last year. I’ll wait.

Once you have it, you’ll need to find three numbers on the first two pages:

1. Total income
2. Taxable income
3. Total tax paid

In the most recent return I used, these were on lines 9, 15, and 24. But these can change from year to year, so look for the labels, not just the line numbers.

Step 2: Calculate Your Effective Tax Rate

Take the total tax paid—which includes both federal income tax and payroll/self-employment taxes—and divide it by your total income. This calculation gives you your effective tax rate.

For example, let’s say:

• Total income: $125,000
• Total tax paid: $15,000
• Effective tax rate: $15,000 ÷ $125,000 = 12%

This number might be lower than you expected because the first portion of your income benefits from things like the standard deduction or lower tax brackets. These factors reduce the overall tax rate across your entire income.

Step 3: Adjust for Growth and Changes in Tax Brackets

If your income this year is expected to be similar to last year’s, you can use the same effective tax rate as a rough guide for how much to set aside for taxes. However, if you expect your income to increase, things get a bit more complicated.

This is where IRS tax brackets come into play. Take a look at your taxable income from last year (line 15, typically) and see where it falls in the current year’s tax brackets. For example:

• Last year, your total income was $125,000, but your taxable income—after deductions—was $90,000.
• Based on the 2024 tax brackets, $90,000 falls into the 22% tax bracket.

Now, if you expect to earn an additional $20,000 this year, that extra income will also be taxed at 22%, up to the next bracket.

Accounting for Self-Employment Taxes

Self-employed business owners need to account for self-employment taxes—which include Social Security and Medicare. This tax is 15.3% on earned income, split as:

• 12.4% for Social Security
• 2.9% for Medicare

Social Security taxes max out at $168,600 for 2024, meaning you stop paying the 12.4% portion on income above that amount. However, the Medicare tax continues without a cap.

If your income hasn’t yet hit the Social Security threshold, you’ll need to add 15.3% on top of your regular income tax rate when estimating taxes.

Estimating Taxes on Additional Income

Using our earlier example:

• Your taxable income last year was $90,000.
• If you expect to make $110,000 this year, the additional $20,000 will still fall under the 22% tax bracket.
• Add the 15.3% self-employment tax to the 22% income tax, giving you a combined rate of about 37% on that extra income.

This is a quick way to estimate taxes on any new earnings beyond what you made last year.

IRS Safe Harbor Rules: Avoid Penalties

Jamie explains the IRS safe harbor rule, which protects you from penalties if you underpay your estimated taxes. The rule says:

• If you earned less than $150,000 last year: Pay at least 100% of last year’s total taxes.
• If you earned more than $150,000: Pay at least 110% of last year’s taxes to avoid penalties.

While following the safe harbor rule helps avoid fines, it won’t prevent you from owing more at tax time if your income has grown significantly.

Jamie’s Profit Planning System for Taxes

Now, let me tell you what I do to stay ahead on taxes throughout the year. I use profit planning in my business. Here’s how it works:

1. Set aside a percentage of profits into a separate tax savings account based on your expected tax rate.
2. Pay only what’s required for quarterly estimates to meet IRS safe harbor rules.
3. Save extra funds beyond what’s required in a separate account—so you have enough to cover any year-end tax surprises.

This way, I keep control over my money and avoid giving the government an interest-free loan.

➡️ Grab My Profit Plan Here: Profit Plan

Tracking Profits with a P&L Template

Knowing your profits is key to estimating taxes accurately. That’s why I recommend using a Profit and Loss Dashboard Template to monitor your business finances throughout the year.

➡️ Get the P&L Template Here: Profit and Loss Template

Conclusion: Stay Prepared and Avoid Surprises

Estimating your taxes doesn’t have to be stressful. By using last year’s effective tax rate and adjusting for growth, you can stay on top of your tax obligations. Remember to:

• Follow the safe harbor rule to avoid penalties.
• Account for self-employment taxes in your estimates.
• Use profit planning to keep tax savings separate from your business funds.

If you’re watching this and realizing you need help with tracking your numbers, I highly recommend checking out my video on how to create a simple profit and loss statement using Google Sheets.

Thank you so much for watching! If you found this helpful, don’t forget to subscribe to my channel for more tips on managing your business finances. I’ll see you next time!

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