Set Up the Money
How to Set Aside Money for Taxes from Day One
Short answer
Open a dedicated 'tax savings' account. Transfer 25–30% of every payment received into it automatically. Pay quarterly estimated taxes from that account on April 15, June 15, September 15, and January 15. Never spend from it.
The #1 reason small businesses fail in year two is an unpaid tax bill from year one. Build the habit now — before the first IRS letter arrives.
The 4-step system
- Open a high-yield savings account labeled 'Taxes Only' at the same bank as your business checking.
- Calculate your set-aside rate: 25% if sole prop netting under $50K, 30% if higher or in a high-tax state. Add 5% if you have local income tax.
- Set up automatic transfer the day each invoice gets paid. Many invoicing apps trigger this automatically.
- On April 15, June 15, September 15, and January 15, pay estimated taxes directly from the tax savings account using IRS Direct Pay.
How much to actually save
| Net business income | Set aside this % |
|---|---|
| < $20K | 20% |
| $20K – $50K | 25% |
| $50K – $100K | 28% |
| $100K – $200K | 30% |
| > $200K | 33% |
Frequently asked questions
What if I save too much?
Roll the surplus to next year's first quarter or move it to your operating account in January after your CPA confirms the final number. Over-saving has never killed a business.
Invoice from day one.
Glo Invoice is free for 14 days for new owners — your first invoice goes out in under 60 seconds.
Sources & further reading
Primary sources we consulted when writing and reviewing this guide.