How Much to Set Aside for Taxes (Simple Owner Framework)

Most small business owners guess when it comes to setting aside money for taxes. Or worse—they wait until tax season and hope it all works out. That’s how you end up stressed, scrambling, or owing more than you expected.

The truth is, you don’t need a complex formula.
You need a simple, owner-friendly percentage system that keeps you safe in any situation.

Here’s exactly how to determine how much to set aside (weekly or monthly) based on your profit level, business structure, and where you are in your business journey.

1. Start With “Profit,” Not Revenue

Tax planning begins with profit, not total sales.

Profit = Revenue – Expenses

If your books aren’t up to date, your estimates will be off.
You don’t need perfection—just a reliable profit number.

2. Choose a Simple Percentage Based on Which Stage You’re In

Here’s the straightforward framework I give business owners:

Stage 1 — New or Low-Profit Business

Set aside 20% of profit

This usually covers:

• federal income tax

• self-employment tax

• state obligations (if applicable)

Lower profit = lower tax bracket, so 20% is generally safe for most new businesses.

Stage 2 — Consistent Profit ($40k–$120k/yr)

Set aside 25–28% of profit

This range covers:

• federal taxes

• self-employment taxes

• potential quarterly tax payments

• small fluctuations in profit

If you're somewhere in the middle, pick 27% and stay consistent.

Stage 3 — High-Profit or S-Corp Owners

Set aside 30–32% of profit

Why higher?

• S-Corps reduce self-employment tax, but

• you pay payroll taxes on your salary

• distributions may be taxed differently

• higher profits can push you into higher tax brackets

If you routinely earn strong profit, protect yourself with a 30%+ buffer.

3. Add 5% Extra If You’re Behind on Estimated Taxes

If you didn’t pay quarterlies—or you know you underpaid—build in a short-term “catch up” buffer.

This avoids penalties and surprise balances due in April.

4. Use Separate Accounts (Not Your Operating Account)

Do not keep your tax savings in your main business checking.

Use:

• a separate business savings account

• an account nicknamed “TAX HOLDING”

• automatic transfers

When tax time hits, the money is ready—and no emotion is involved.

5. Transfer Weekly or Monthly (Pick One and Stick to It)

The best system = the one you follow.

Weekly works if:

• your income fluctuates

• you use Stripe/PayPal

• you prefer tighter cash flow management

Monthly works if:

• you invoice clients

• you have predictable billing cycles

• you operate on retainers

Consistency > precision.

6. Recalculate Quarterly

Your business evolves. Your tax savings plan should, too.

Every quarter:

• check your YTD profit

• run a fresh estimate

• adjust your percentages

This keeps you ahead instead of behind.

7. If You Want Zero Stress: Use This Shortcut Formula

If you don’t want to calculate anything at all, use this fail-safe:

→ Set aside 30% of ALL owner pay (salary + draws + distributions).

Works for most service-based businesses and prevents under-saving.

Final Thoughts

Taxes don’t have to be overwhelming or unpredictable. When you use a simple percentage system—and keep that money separate—you’ll always be prepared, even if your profit fluctuates during the year.

Need help estimating your taxes or setting up a clear tax savings plan? Let’s schedule a quick session and dial in your numbers before year-end.

The Money-Smart Business Blog provides educational content designed to help small business owners make informed decisions. This content is not tax, legal, or financial advice and should not be used as a substitute for personalized guidance. Always consult with a licensed professional before taking action based on this information.