How Much Should Self-Employed Individuals Save for Taxes?

One of the biggest adjustments that comes with becoming self-employed is realizing that no one is automatically taking taxes out of your paycheck.

When you're an employee, your employer handles withholding throughout the year. When you're self-employed, that responsibility moves to you. Whether you're a freelancer, independent contractor, consultant, business owner, or someone earning income through a side business, the money you receive is generally yours to manage—but part of it needs to be set aside for taxes.

That leads to a question we hear often: How much should I actually save for taxes?

There isn't one percentage that works for everyone. Your tax liability depends on your income, business expenses, filing status, deductions, credits, and other sources of income. Still, having a reasonable savings target can make a significant difference when tax payments come due.

A Good Starting Point: Set Aside 25% to 30%

For many self-employed individuals, setting aside roughly 25% to 30% of net business income can be a reasonable starting point for federal taxes.

That percentage is a planning estimate, not an IRS rule.

Someone with substantial business deductions, a lower overall taxable income, or significant tax credits may owe considerably less. Someone with higher income or additional household income may need to set aside more.

The important distinction is between gross income and net income. If your business brings in $100,000 but you have $30,000 of legitimate business expenses, your net business profit is $70,000. Tax calculations generally begin with that business profit rather than simply taxing every dollar that came through the door.

This is one reason accurate bookkeeping matters so much for self-employed individuals.

Why Self-Employment Taxes Can Be a Surprise

Income tax is only part of the picture.

Self-employed individuals may also owe self-employment tax, which covers Social Security and Medicare. The IRS currently sets the self-employment tax rate at 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare, subject to the applicable rules and wage limits.

That doesn't mean you simply add 15.3% to your income tax bill. The calculation is more complicated, and the Social Security portion has an annual wage base. For 2026, the Social Security wage base is $184,500.

There is also a deduction for one-half of self-employment tax when calculating adjusted gross income.

This is why a simple rule such as "save 20%" can leave some self-employed taxpayers underprepared.

Your Business Expenses Can Change the Number

Tax planning starts with knowing what your business actually earns after expenses.

Suppose a freelance designer earns $80,000 during the year. That sounds like $80,000 of taxable business income at first glance, but the designer may have legitimate expenses related to software, advertising, professional services, supplies, equipment, mileage, or other costs associated with operating the business.

If those expenses reduce the business's net profit to $60,000, the tax calculation is based on a very different starting point.

The IRS requires self-employed individuals to keep records of income and expenses, and those records help support deductions reported on the tax return.

Good bookkeeping throughout the year makes this process much easier because you're not trying to reconstruct an entire year's finances when tax season arrives.

Don't Forget About State Taxes

Federal taxes aren't the only consideration for someone who is self-employed.

State income taxes can add another layer to your tax liability depending on where you live and where your business operates. For business owners and independent contractors in New York and California, state tax planning deserves particular attention because the overall tax picture can be more complicated than simply calculating federal income tax.

Your actual amount to save should therefore be based on your complete tax situation rather than a national rule of thumb.

A CPA can look at your federal and state obligations together and help determine a more appropriate amount to set aside.

Quarterly Estimated Taxes Matter

Saving money for taxes is only half the job. You also need to understand when those taxes need to be paid.

The U.S. tax system generally operates on a pay-as-you-go basis. Because self-employed individuals usually don't have an employer withholding taxes from their business income, they may need to make estimated tax payments during the year.

For 2026, the IRS generally requires estimated tax payments when you expect to owe at least $1,000 after withholding and refundable credits, and your withholding and credits fall below the applicable safe-harbor amounts. Those rules can depend on your prior-year tax liability and income level.

This is where many new business owners get caught off guard. They save money throughout the year but don't realize that taxes may need to be paid periodically rather than waiting until the annual tax return is filed.

What If Your Income Changes During the Year?

Self-employment income rarely arrives in perfectly equal amounts.

A contractor might have a slow first quarter and a very strong summer. A consultant may sign a major client halfway through the year. A business owner may experience significant seasonal fluctuations.

Your tax savings strategy should be able to adjust with your income.

If your business earns substantially more than expected, increasing the amount you set aside can prevent a large balance from accumulating. If income falls, your estimated payments may need to be reviewed as well.

The IRS provides Form 1040-ES and its worksheets to help taxpayers calculate estimated taxes based on expected income, deductions, credits, and self-employment tax.

A Separate Tax Savings Account Can Help

One of the simplest habits for self-employed individuals is separating tax money from everyday spending.

Instead of leaving the entire business payment in the same account you use for operating expenses, consider transferring a portion into a separate savings account designated for taxes.

For example, if you receive a $5,000 payment and decide that 30% is an appropriate amount to reserve based on your current tax projection, you could move $1,500 into your tax savings account.

The money remains available when your tax payment is due, and you're less likely to accidentally spend funds that were really intended for the IRS or your state.

The Right Percentage Can Change From Year to Year

Your tax situation isn't necessarily going to look the same every year.

Business income may increase. You may purchase equipment, hire employees, start contributing more toward retirement, get married, have children, purchase a home, or develop additional sources of income.

Tax laws also change.

For example, the IRS's 2026 guidance includes updated tax brackets and a $16,100 standard deduction for single filers, $24,150 for heads of household, and $32,200 for married couples filing jointly.

Those numbers illustrate why an old tax estimate shouldn't simply be carried forward indefinitely.

Regular tax planning allows you to adjust your savings and estimated payments as your financial situation changes.

What Should You Do If You Haven't Saved Enough?

If you're already approaching tax season and haven't set aside enough, don't ignore the problem.

Start by determining your expected taxable income and reviewing your business expenses and records. From there, you can estimate your federal and state tax liability and determine whether additional payments are necessary.

A tax professional can also review your situation and identify deductions, credits, retirement contributions, or other legitimate planning opportunities that may reduce your overall liability.

The earlier you address the issue, the more options you generally have.

The Bottom Line

There is no universal percentage that every self-employed individual should save for taxes. For many people, 25% to 30% of net business income is a reasonable starting point, but your actual tax liability may be higher or lower depending on your circumstances.

The goal is to understand your numbers before the tax deadline arrives.

Accurate bookkeeping, regular tax projections, and timely estimated payments can turn tax season from an unpleasant surprise into a predictable part of running a business.

At Komos Reliable Refund, we help self-employed individuals and small business owners in New York and California with tax preparation, tax planning, bookkeeping, payroll, and financial reporting. If you're unsure how much you should be setting aside, or you're concerned that your current tax payments aren't keeping up with your income—we can help you develop a tax strategy based on your actual financial situation.