Estimated Tax Payments for Towing Business Owners

By Yarik Yarosh, CPA ·September 5, 2026 ·3 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Towing businesses have more consistent revenue than many trades because roadside assistance, accident towing, and police rotation work happen year-round. Winter may bring a slight uptick from dead batteries and slide-offs, and summer brings overheating and tire blowouts. The bigger cash flow challenge is equipment: a new tow truck costs $80,000-$150,000 and creates a massive Section 179 deduction in the purchase year, followed by years of higher taxable income. Estimated tax planning for towing needs to account for this equipment cycle.

✓Key takeaway

Estimated tax basics for towing business owners:

Who must pay: any towing business owner (sole proprietor, S-Corp shareholder, or partner) expecting to owe $1,000+ in federal tax after withholding and credits.

Due dates: April 15, June 15, September 15, January 15.

Set-aside percentage: 25-30% of net profit for sole proprietors. In truck purchase years, the Section 179 deduction may reduce or eliminate the estimated payment requirement.

Safe harbors:

Pay 100% of prior year’s tax (110% if AGI > $150,000)
Pay 90% of current year’s tax
Annualized income installment method

The equipment cycle problem: In Year 1 (truck purchase), Section 179 may create a net operating loss or very low taxable income. In Years 2-5, with no large equipment deduction, taxable income jumps. The prior year safe harbor can create problems in Year 2: if Year 1 tax was $5,000 (because of the truck deduction) and Year 2 tax is $30,000, the prior year safe harbor requires only $5,500 (110% of $5,000), creating a $24,500 balance due at filing. The owner must save for this.

How does the truck purchase cycle affect estimated taxes?

Hypothetical example

Round numbers. A sole proprietor towing company, one truck. Annual revenue: $200,000 (consistent year to year). Annual operating expenses (fuel, insurance, dispatch, maintenance, excluding truck purchase): $80,000.

Year 1 (truck purchase year):

Revenue: $200,000
Operating expenses: $80,000
Truck purchase (Section 179): $120,000
Net profit: $0
Tax: $0
Estimated payments needed: $0

Year 2 (no truck purchase):

Revenue: $200,000
Operating expenses: $80,000
Net profit: $120,000
SE tax: $120,000 x 92.35% x 15.3% = $16,942
Income tax: approximately $13,000
Total tax: $29,942

Prior year safe harbor in Year 2: 110% of Year 1 tax = 110% x $0 = $0. The safe harbor requires $0 in estimated payments, but the owner will owe $29,942 at filing. If the owner doesn’t save for this, it creates a cash crisis in April.

The right approach: Even though the prior year safe harbor technically requires $0, the owner should:

Set aside 25% of monthly net profit ($10,000/month net x 25% = $2,500/month) in a dedicated tax savings account
Make voluntary estimated payments of $7,500/quarter ($30,000 total, roughly matching the expected tax)
This avoids the $30,000 surprise at filing

Year 3 (no truck purchase):

Same net profit: $120,000
Same tax: approximately $30,000
Prior year safe harbor: 110% of $29,942 = $32,936 / 4 = $8,234/quarter
This is now straightforward: pay $8,234/quarter

Year 4 (replacement truck):

Revenue: $200,000
Operating expenses: $80,000
New truck (Section 179): $130,000
Net profit: ($10,000) loss
Tax: $0
Prior year safe harbor requires $8,234/quarter ($32,936 total)
The owner pays $32,936 in estimated taxes on income that produced $0 tax
The overpayment ($32,936) is refunded at filing or applied to next year

S-Corp approach: An S-Corp eliminates this cycle entirely:

Set salary at $60,000
Adjust W-4 withholding to cover both salary tax and estimated tax on distributions
Payroll withholding is treated as paid evenly throughout the year
In truck purchase years: reduce withholding (lower expected tax)
In non-purchase years: increase withholding
No quarterly estimated payments, no timing issues

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Estimated Tax Payments for Towing Business Owners." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/towing-estimated-taxes

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.