Nothing wrecks a profitable small business's cash flow like a tax bill it didn't save for. Because no one withholds tax from your business income, setting money aside as you earn it — and paying quarterly — is the difference between a boring April and a scramble for cash.
The 25–30% rule of thumb
A safe default is to move 25–30% of net profit (not revenue) into a separate tax savings account. That range is meant to cover federal income tax plus self-employment tax (~15.3% for Social Security and Medicare on pass-through profit). Do it every time money comes in, so the cash is never 'spent' before it was owed.
Refine it for your situation
The right percentage depends on your total household income, tax bracket, business entity, and state. A high-income sole proprietor in a state with income tax should lean toward the top of the range or higher; an S-Corp owner paying themselves a reasonable salary may set aside differently. When in doubt, over-reserve — a refund is better than a shortfall.
Pay quarterly to avoid penalties
If you'll owe $1,000+ for the year, the IRS expects estimated payments roughly in April, June, September, and January. Skipping them triggers an underpayment penalty plus interest — even if you pay in full at filing. Quarterly payments also keep the bill from piling into one scary number.
Project it from real profit
The Quarterly Tax Estimator turns your actual net profit into the exact amount to set aside and pay each quarter, so taxes never surprise you.
Open the free Quarterly Tax Estimator →
Frequently asked questions
What percentage of income should I save for taxes?
A common guideline is 25–30% of net profit, covering federal income tax plus ~15.3% self-employment tax. Adjust up for higher income or state taxes.
Do small businesses have to pay quarterly taxes?
If you expect to owe $1,000 or more for the year, the IRS generally requires quarterly estimated payments. Missing them causes an underpayment penalty even if you pay the full balance at filing.
Should I set aside based on revenue or profit?
Profit. You're taxed on net profit after deductible expenses, so reserving a percentage of profit — not gross revenue — is the accurate approach.