Self-employed person reviewing business finances and tax documents
Finance June 2026 · 5 min read ✓ Reviewed for accuracy

How Much Should You Set Aside for Taxes as a Self-Employed Person?

Informational only. This article does not constitute insurance, legal, or financial advice. Coverage terms vary by carrier, policy, and jurisdiction. Full disclaimer.

Tax season is the thing that surprises most new self-employed people. You had a great year, you got paid well — and then in April you find out you owe $8,000 that you don't have. Here's how to make sure that never happens to you.

15.3%
Self-employment tax rate
10–22%
Federal income tax (most service businesses)
25–30%
Safe total to set aside

The two taxes you owe as a self-employed person

1. Self-employment tax (15.3%)
This covers Social Security and Medicare. When you're an employee, your employer pays half (7.65%) and you pay half through withholding. When you're self-employed, you pay both halves. This applies on all net self-employment income up to ~$160K.

2. Federal income tax
This is the same tax everyone pays, based on your tax bracket. For most service business owners earning $40K–$100K in profit, this runs 12–22% federally.

Good news: You can deduct half of your self-employment tax before calculating income tax. So your effective total rate is a bit lower than adding both numbers together.

How much to set aside: a simple rule

Set aside 25–30% of every payment you receive into a dedicated savings account. The exact right percentage depends on your income level and state taxes, but 25–30% works as a safe buffer for most service business owners.

Net profitApprox. total taxSet aside per $100 earned
$20,000/year~$4,500$22
$40,000/year~$10,500$26
$60,000/year~$17,000$28
$80,000/year~$23,500$29
Automate it: Open a separate savings account labeled "Taxes." Every time you receive a client payment, transfer 25–30% immediately before you spend anything else. Don't wait until the end of the month — money has a way of disappearing.

Business deductions reduce what you owe

The good news: you're only taxed on your net profit — revenue minus deductible business expenses. Common deductions include:

Don't estimate your deductions — track them. Most self-employed people leave hundreds or thousands in deductions on the table every year because they didn't track their expenses throughout the year.
Bottom line: Set aside 25–30% of every payment, make quarterly payments by the IRS deadlines, track every deductible expense, and you'll never have a tax surprise. Work with a CPA for your first year — the cost is deductible, and they'll find savings that pay for themselves.

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Disclaimer: This guide is for informational purposes only and is not legal, tax, or insurance advice. Always verify specifics with a licensed professional in your state.