I was always taught that you won't have a penalty for underpaying estimated quarterly taxes if you paid an amount based on what you earned the previous year. So basically, if you paid taxes of $12,000 on $50,000 of income for the 2009 tax year, and had an increase in income to $190,000 for 2010, you could make 4 estimated payments of $3000 each ($12,000 total) to not be penalized on your 2010 tax return. Obviously you would need to pay any additional tax due by April 15th of 2011. So if your total tax liability for 2010 was $60,000, you could make $12,000 in estimated payments just like the previous year, and another $48,000 payment on April 14, 2011. You would NOT BE PENALIZED.
However, in 2011 if your income stayed up at $190,000, and your tax bill was equal to or greater than the 2010 $60,000 figure, you would need to increase the esimated payments to 4 x $15,000 each, in order to avoid penalties for underpayment.
In a nutshell, you get a break the first year that your income jumps, but not for two years in a row.
Cat adjusters have very "lumpy" income, ie. one year with low income and the next with high income, so CAT adjusters can take advantage of this rule. You still have to pay the tax you owe, you can just do a larger portion at the last minute.
For those who dare, here is the page from the IRS that only a tax geek could love: http://www.irs.gov/publications/p505/ch02.html
From Turbotax (in plainer English):
The safest option to avoid an underpayment penalties is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. If you satisfy either test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.
If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a little safety net.
If you expect your income this year to be more than your income last year and you don't want to end up owing any taxes when you file your return, try to make enough estimated tax payments to pay 100 percent of your current year income tax liability.
So Robbie is right, you can bank the money you have budgeted for taxes and pay it at the last minute, but you can only do it the first year your income jumps. However I would like to point out that there aren't really any suitable (safe/liquid) investments paying any kind of return to make that strategy worthwhile.
Rates right now are very low.
Here is a recent auction price of a U.S. Government Treasury Bill auction (http://www.treasurydirect.gov/RI/OFBills)
26-WEEK 11-17-2011 05-17-2012 0.040 0.041 99.979778 9127955N7
If you paid $9997.97 for the 26 week bill it would increase $2.03 to mature at par of $10,000.00
Maybe you could double your return with some other liquid investment and make a whopping $4.00.
A much larger tax advantage could be obtained from other strategies such as:
buying a vehicle and depreciating it
using retirement accounts, such as IRAs, SEPs, money purchase/profit sharing, defined benefit etc.
and many other strategies your CPA can advise you on.