Estimated tax is income tax paid in instalments across the year, rather than through withholding on a wage.
Who pays it
Owners whose business income reaches them without withholding: sole proprietors, partners, and members of pass-through entities taking draws or distributions.
An owner paying themselves a wage has tax withheld on that wage, but any profit reaching them beyond it is generally not covered.
Why it is not optional
The system expects tax to be paid as income is earned. Paying it all at filing incurs an underpayment penalty, which is charged even where the return is accurate and the balance is settled in full.
The instalments
Four across the year, on fixed dates that are not evenly spaced despite being described as quarterly.
Safe harbour
Paying a specified proportion of either the current year's liability or the previous year's generally avoids the penalty regardless of what the eventual figure turns out to be.
Working to the previous year's figure is the simpler approach for most owner-operated businesses, because it is a known number rather than a forecast. The exact thresholds are set by rule and by income level, so the figure comes from an accountant.
The cash discipline behind it
The money has to exist on four fixed dates. In a seasonal business those dates do not align with the good months.
Setting the money aside as profit is earned, rather than finding it when the date arrives, is what a tax reserve is for, and the instalments belong in the cash flow forecast as known outgoings.
State as well as federal
Most states with an income tax have their own instalment requirement on its own schedule.