Stop Scrambling at Tax Time: A Simple System for Quarterly Tax Payments
Tax day just passed. And for ODs and practice owners, there's a decent chance this week involved some combination of stress, surprise, or scrambling for cash.
It doesn't have to be that way. The fix isn't complicated - it's having a system.
How ODs Pay Taxes Through the Year
The U.S. tax system is pay-as-you-go. You're expected to pay throughout the year as you earn — not all at once in April. That happens two ways:
- Payroll withholdings (from your W2 salary, whether you're employed or paying yourself through an S Corp)
- Quarterly estimated payments (due the 15th of April, June, September, and January) for income not covered by payroll — like practice profit above your S Corp salary, or all of your income if you're taxed as a sole proprietor or partnership.
Which applies to you depends on how you practice. Employed associates mostly rely on withholdings. Sole proprietors and partnerships rely on quarterly payments. S Corp owners typically use both.
How Much Should You Pay?
The ideal target is getting as close to $0 due at tax time as possible - no big bill, no big refund. But for practice owners with fluctuating income, that's easier said than done.
The IRS gives you three safe harbor targets that protect you from underpayment penalties.
- Pay at least 110% of last year's total tax (found on page two of your 1040). If your "Adjusted Gross Income" last year was less than $150k, you can do 100% of last year's total tax.
- 90% of the current year's projected tax
Which target should you use?
The best answer is to check with your tax and financial professionals. In general, if your income is expected to similar or higher than last year, the 110% target may be the way to go. It's simple and uses a known number.
If income is expected to be much less than last year, then the 90% target may make more sense. It all depends on the specific circumstances.
Then, as the year unfolds, you can work proactively to project the tax year with your tax pro and financial planner and update your tax payments as needed.
The System: A "Sacred" Tax Account
Here's where it gets practical. For employed ODs, it's relatively simple unless you have high amounts of non-W2 income: increase of decrease payroll withholdings to better meet your expected tax.
For practice owners or 1099 ODs, it's a bit more involved but doable. Take your annual target, subtract your expected payroll withholdings, and divide what's left by four. That's your quarterly estimated payment. Your tax pro may have given you these numbers if they already filed your tax return.
Then open a dedicated savings account - your "sacred" tax account. Automate deposits into it each quarter (or monthly if you prefer). This money doesn't belong to you anymore. It belongs to the IRS.
With practice cash flow, you want to prioritize the following needs:
- Operating expenses
- Tax payments
- Debt payments
- Building cash buffer to target
- Lastly, potential owner distributions
Set-aside taxes before owner distributions. Get that order right and you'll rarely be caught off guard.
As the year unfolds and your income picture gets clearer, adjust. Increase what you're setting aside if profits come in higher than expected. The goal is staying ahead and not guessing in April.
The Bottom Line
Pick your safe harbor target as a starting point. Calculate your quarterly amount. Automate deposits into a dedicated account. Adjust as you go. It's not exciting - but it's how you go from reactive and stressed to in control.
None of this replaces proactive conversations with your tax and financial professionals throughout the year. The most ideal outcome is you have a team projecting your tax year as you go. But it gives you a strong starting point for 2026.
For a deeper dive, check out this week's episode of the Optometry Money Podcast wherever you listen.
If you're not sure where you stand, let's talk. I help optometrists all over the country navigate exactly this kind of planning - where student loans, taxes, practice finances, and the bigger financial picture all intersect. And I help communicate closely with your tax professional to make sure everyone's on the same page.
Click here to schedule your free consultation. We can look at what's on your mind and figure out if there's a better path forward for your situation.
Have a great weekend!
Evon Mendrin, CFP®, CSLP®
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