How much should I set aside for taxes?

The short answer

For most self-employed people and Schedule C business owners, a common rule of thumb is to set aside 25% to 30% of your net income, what’s left after business expenses, for taxes. That range covers both federal income tax and self-employment tax for a lot of small businesses.

That’s a starting point, not a precise answer. The honest truth is that the right percentage is different for everyone, and guessing with a rule of thumb is exactly how people end up over- or under-saving. The good news: you don’t have to guess.

Why the number isn’t one-size-fits-all

The reason a flat percentage can mislead you is that your tax bill is built from several moving parts. Two business owners with the same revenue can owe very different amounts. Here’s what actually drives your number:

• Income tax Your federal rate depends on your total taxable income and filing status, and it’s tiered, not flat.
• SE tax Self-employment tax (Social Security and Medicare) is about 15.3% on your net self-employment earnings, on top of income tax.
• Deductions Every legitimate business deduction lowers your net income, and therefore the amount you owe.
• State tax Depending on where you live, state income tax can add a meaningful amount, or none at all.
• Other income A spouse’s W-2, investment income, or credits can all shift your final number up or down.

This is why the calculator beats a rule of thumb, it accounts for your actual income and expenses instead of applying a blanket percentage to everyone.

Don’t forget: you may owe quarterly

Setting money aside is only half of it. If you expect to owe a meaningful amount, the IRS generally wants you to pay it in four quarterly estimated payments through the year, not all at once in April. Miss them and you can face an underpayment penalty even if you pay in full later. We break this down in our guide to estimated quarterly tax payments for Schedule C business owners.

If you’d rather work from last year’s return and the IRS Safe Harbor Rule, our Know What You Owe Worksheet walks you through estimating your federal liability step by step.

The real key: know your numbers

Here’s the part people miss. You can’t set aside the right amount for taxes if you don’t actually know your net income, and you can’t know your net income if your books aren’t accurate and current. Setting aside a percentage of a number you’re guessing at is still guessing. Clean, up-to-date books are what turn tax-saving from a worry into a simple monthly habit.

That’s the connection most people don’t make: good bookkeeping is what makes tax planning possible. If your books aren’t giving you a number you trust, that’s worth fixing first.

This article is general information, not tax advice. Your exact tax obligation depends on your specific situation. For a number you can rely on, use the calculator or talk with a qualified preparer.