Quarterly & Income Tax
How Much to Set Aside for Taxes (and Where to Put It)
Short answer
Move 25–30% of every customer payment into a separate savings account labeled 'Taxes'. Higher earners or those in high-tax states (CA, NY, OR) should bump to 30–35%. Treat that account as untouchable until you pay quarterlies.
Most underpayment-penalty stories sound the same: 'I knew I owed taxes, I just spent the money first.' Solve it by never letting the money sit in your operating account in the first place.
The transfer rule
- Open a separate high-yield savings account at the same bank (instant transfers).
- Every time a customer pays you, transfer 25–30% of the deposit into the tax account.
- Pay quarterlies directly from that account on April 15, June 15, September 15, January 15.
- If you over-saved by year-end, the surplus is your bonus. If you under-saved, raise the percentage next year.
Suggested rates by situation
| Situation | Set-aside % |
|---|---|
| Low income, no state tax (TX, FL) | 20–22% |
| Typical sole prop, moderate state tax | 25–28% |
| High income or high-tax state (CA, NY, OR) | 30–35% |
| S-Corp with reasonable salary | Calculate separately — payroll plus 20% |
Frequently asked questions
What if I cannot afford to set aside 25%?
That is a signal to raise prices, not skip taxes. The bill comes due either way.
Tax-ready records, automatically.
Glo Invoice tags every expense and 1099 contractor so tax time is a download, not a scramble.
Sources & further reading
Primary sources we consulted when writing and reviewing this guide.