If you're self-employed and nobody's withholding taxes from your income, you're expected to pay estimated taxes four times a year. The question everyone asks is "how much do I put away?"
The honest answer is "it depends on your total income and your state," but the rule of thumb most freelancers start with is 25 to 30 percent of net profit (income minus business expenses). That's meant to cover:
- Self-employment tax (Social Security and Medicare for the self-employed), which is a flat percentage on net earnings.
- Federal income tax at whatever bracket your total income lands in.
- State income tax, if your state has one.
Why a range: someone with a low total income and a lot of expenses lands near the bottom of it. Someone with a high income, a spouse's salary pushing them into a higher bracket, and a state income tax lands at the top or above it.
Two habits that make this painless:
1. Move the set-aside the day you get paid. Separate savings account, automatic. If you wait until the quarterly deadline to find the money, it's already been spent.
2. Set aside on net, not gross. If you set aside 30 percent of every invoice before expenses, you'll over-save. Fine if you like a refund, but that's cash you couldn't use all year.
Our Small Business Bookkeeping Tracker has a set-aside calculator on the dashboard that does this math on your net as you enter income, at whatever rate you choose. Set it once, then just log your payments.
General information, not tax advice. A tax pro can tell you your actual rate after a look at last year's return.
How much to set aside for quarterly taxes (and why 25 to 30 percent is the usual starting point)
OfficialBlackVortex Digital · 2 days ago · 0 replies