How much should you set aside for taxes?
Set aside 25% to 30% of your profit, not your revenue, for federal and state taxes. Go higher if you earn over about $100,000 or live in a high-tax state. Move the money into a separate savings account each time you're paid, and use it for your quarterly estimated payments.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- Rule of thumb. 25% to 30% of profit
- Based on. Profit, not revenue
- Keep it in. A separate savings account
Why 25% to 30%?
Your tax bill has three parts, which are self-employment tax at about 14% of profit, federal income tax, and any state income tax. For many freelancers, those total 25% to 30%.
| Yearly profit | Rough set-aside |
|---|---|
| Under $50,000 | 20% to 25% |
| $50,000 to $100,000 | 25% to 30% |
| $100,000 to $200,000 | 30% to 35% |
| Above $200,000 | 35% or more |
These are rough planning figures. Single or married status, deductions, dependents and your state all shift them. Some states have no wage income tax, so the low end can apply there.
How do you work out your own number?
Look at last year's return. Divide your total tax, plus state tax, by your business profit. That's your real rate. If your income's growing, add a few points. If this is your first year, start at 30%. It's far easier to have extra than to come up short in January.
What's the simplest system?
- Open a separate savings account, and call it taxes.
- Each time you get paid, move your percentage into it.
- Don't touch it for anything else.
- Pay your quarterly estimates from that account.
- At year end, compare what's left with what you owe.
Doing it per deposit works better than a monthly calculation, because you never spend money that isn't yours.
Is it based on revenue or profit?
Tax is charged on profit, so a percentage of revenue will overstate it for a business with high costs. If you run on thin margins, base it on real monthly profit from your books. A consultant with few expenses can use revenue as a quick shortcut. A shop owner can't.
What if you've spent it already?
Don't skip filing. File on time and set up a payment plan if needed. Then raise your percentage, and start paying estimates this quarter. Missing a payment isn't a disaster, but it can cost you.
Sources
General information, not tax advice for your situation.
What percentage of my income should I save for taxes as a 1099 worker?
Around 25% to 30% of your profit, and more at higher incomes or in high-tax states.
Should I save for taxes before or after expenses?
After. Tax is based on profit, though saving from each deposit is a useful habit if your margins are steady.
Should I keep my tax savings in a high-yield account?
Yes, if it's liquid and insured. Just make sure you can reach it for each quarterly payment.
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