A simple guide to estimating tax savings for small business owners
If you're self-employed or running a small business, one of the most common (and stressful) questions is: how much should I set aside for taxes?
Unlike a W-2 job where your employer handles withholdings, business owners are responsible for calculating, saving, and paying taxes themselves. And without a system in place, it's easy to fall behind — especially if your income fluctuates.
Here’s how to estimate the right percentage of your revenue to save for taxes, avoid costly surprises, and build a more confident financial routine.
Why You Need to Save for Taxes All Year
When you get paid by clients or customers, no taxes are automatically withheld. That means you're responsible for:
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Federal income tax
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Self-employment tax (Social Security + Medicare)
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State and local taxes
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Quarterly estimated payments
Failing to set money aside as income comes in can lead to panic in April — or penalties from the IRS.
Setting aside a percentage of your revenue into a dedicated tax savings account ensures the money is there when you need it.
General Rule of Thumb: 25–30% of Net Income
Most small business owners should set aside 25–30% of their net income (that’s revenue minus business expenses) for taxes. Here's why:
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Federal income tax ranges from 10% to 37%, depending on income
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Self-employment tax is a flat 15.3% on net earnings
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State income tax varies widely depending on where you live
If you're making under $100,000/year in net income, 25–30% is usually a safe cushion.
Inside The Small Business Planner, you’ll find a simple formula and allocation system to calculate your exact tax savings target based on your business income.
When to Adjust That Percentage
You may need to increase or decrease your tax savings rate depending on:
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Your total taxable income (including a spouse’s income)
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Your deductions and write-offs
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The state you live in (some have no income tax, others are high)
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Whether you’ve elected S Corp status (which can reduce self-employment tax)
A qualified CPA or tax preparer can help you refine your target. But even with expert help, it’s your job to make sure the money gets set aside in advance.
Use a Tax Savings Account
One of the easiest ways to stay on track is to create a dedicated Tax Account as part of your business bank setup.
Each time your business gets paid:
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Deposit all revenue into your Income Account
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Transfer 25–30% of that into your Tax Account
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Allocate the rest to your Business Expenses and Owner Pay Accounts
This “pay-yourself-and-save-first” system is core to The Small Business Planner method — and it turns tax prep from a stressful guessing game into a calm, consistent routine.
What If You’re Just Starting Out?
If you’re early in your business and not yet profitable, start small — even saving 10% builds the habit. As your income grows, increase the percentage and check in quarterly to make sure you're on track.
It’s better to slightly over-save and roll extra funds into the next quarter than to come up short.
Final Takeaway
You don’t need to be a tax expert to stay ahead — but you do need a system. Setting aside 25–30% of your net income into a separate account is one of the smartest financial habits you can build as a business owner.
The Small Business Planner walks you through how to set this up, calculate what you owe, and stay organized year-round — so tax season is just another to-do, not a crisis.
Explore The Small Business Planner now → https://smallbusinessplanner.com/products/planner