How Much Should I Save for Quarterly Taxes?
Why this is the most stressful tax question
“How much am I supposed to be saving for taxes?”
For many online business owners, this is one of the hardest tax questions to answer. Saving too little creates stress later. Saving too much can strain your business cash flow and limit how much money you have available to run or grow your business.
This uncertainty is especially common in the first year, when income can fluctuate and cash flow often feels tight. You’re not only thinking about taxes. You’re also managing expenses, planning ahead, and keeping your business moving forward.
Here’s the good news. You don’t need to know exactly what you’ll owe in order to create a solid system. Quarterly tax savings doesn’t require perfection. It requires predictability.
Once you have a simple and consistent approach to setting money aside for taxes, the rest of your financial planning becomes much easier.
This is very common for online business owners. You’re building something, learning as you go, and making decisions with incomplete information. Taxes often get handled “later,” with the assumption that things will straighten out at filing time.
When they don’t, that’s usually when people start feeling behind or wondering what they did wrong.
In reality, most estimated tax mistakes aren’t about carelessness. They’re about not having a process. Once a simple system is in place, these issues tend to resolve themselves quickly.
The goal of this post isn’t to scare you or point out everything that could go wrong. It’s to help you recognize the most common patterns early, so you can make small adjustments before they turn into bigger problems.
The percentage rule and what it is (and is not)
You’ve probably heard this advice before: “Just save 25–30% of your income for taxes.”
This is very common guidance, and for many self-employed people, it can be a helpful place to start. That said, it is not a one-size-fits-all solution. The 25–30% rule works for some business owners, but it is not automatically the right percentage for everyone.
Why this percentage exists
The reason the 25–30% guideline works for many people is that it generally covers the main types of taxes most online business owners are responsible for:
- Income tax (federal and, in many cases, state)
- Self-employment tax, which includes Social Security and Medicare
For newer business owners who are still getting oriented and do not yet have precise numbers, this range often lands in a reasonable ballpark.
Why it is not universal
The 25–30% guideline is not based on your specific tax situation, and it does not account for factors like:
- Business expenses, which reduce your taxable income
- State taxes, which vary widely
- Your filing status, such as single or married
- Deductions you may qualify for, like the home office deduction or retirement contributions
Because of this, the percentage that works well for one business owner may be too high or too low for another.
That is why the 25–30% rule is best used as a conservative starting point, not a precise calculation. It can help you begin saving consistently, but it is not a guarantee that the percentage will be exactly right for you.
Why underestimating and overestimating feel so different
The most important takeaway from this section is not about choosing the perfect percentage. It’s about understanding what happens when your estimate is off.
When too little is set aside, it often creates pressure later. Business owners may need to redirect cash unexpectedly, adjust spending plans, or make rushed decisions when it comes time to pay. In some cases, there may also be interest or penalties involved.
When too much is set aside, the issue is usually simpler. You’ve been conservative with your planning, and the excess can be adjusted in future months or applied toward future tax payments.
The goal isn’t to default to saving as much as possible. The goal is to choose a reasonable starting point, check in regularly, and make changes as your numbers become clearer.
A flexible system that you revisit is far more effective than trying to guess the “right” number upfront.
What actually determines your tax percentage
Rather than relying on a generic percentage, it’s more helpful to understand why you owe what you owe. This is where your actual numbers start to matter more than any rule of thumb.
Your tax savings percentage is shaped by a few key factors.
Income and profit
Taxes are calculated based on your business profit, not your total revenue. Profit is what’s left after you subtract your business expenses from your income.
As your profit increases, the amount you need to set aside for taxes generally increases as well. A business earning $100,000 in profit will typically need to save more for taxes than one earning $50,000 in profit. This is not about doing anything differently. It’s simply how the tax system works.
This is why focusing on profit gives you a more accurate starting point than using a flat percentage of revenue.
Business expenses
Business expenses directly affect your profit, which means they also affect how much you need to save for taxes.
When expenses increase, taxable profit decreases. When expenses are lower, taxable profit is higher. This relationship is why tracking income and expenses consistently matters, even in your first year of business.
You don’t need a complex system to do this well. Accounting software or a simple spreadsheet can provide enough clarity to make informed decisions about your tax savings.
State taxes
State taxes can also affect how much you need to set aside, and the impact can vary widely depending on where you live.
Some states do not have a state income tax, while others have higher tax rates that need to be planned for throughout the year. Because of this variation, two business owners with similar profits may still need to save different amounts for taxes.
Knowing whether your state taxes apply, and roughly how they work, helps you choose a savings percentage that fits your situation instead of relying on a generic rule.
Filing status and dependents
Your filing status also plays a role in how your income is taxed. Whether you file as single, married filing jointly, or head of household can affect your tax brackets and overall tax calculation.
If you have dependents, tax credits may reduce the total amount of tax you owe. Credits lower your tax directly, which can influence how much you ultimately need to set aside during the year.
This is another reason a flat percentage does not work equally for everyone. Your household situation matters, and your tax savings approach should reflect the full picture, not just your business income.
Translating percentages into real money
Once you understand what influences your tax percentage, the next step is turning that percentage into money you actually set aside.
The goal isn’t to send money to the IRS as you earn it. It’s to save consistently so that when it’s time to make a quarterly payment, you’re paying from money you’ve already set aside.
Focus on consistent saving
Many business owners find that saving consistently throughout the year creates far less stress than trying to set aside large amounts at specific moments.
When saving happens regularly, cash flow stays more even and adjustments are easier to make as income changes. Instead of reacting at certain points in the year, you’re building a system that works in the background.
Consistency matters more than the exact timing.
Use a separate tax savings account
One of the simplest ways to support consistent saving is to use a separate account for tax savings.
This approach helps in two ways:
- It keeps tax savings separate from money used for business operations or personal spending
- It makes it easier to see, at a glance, how much you’ve set aside
Keeping tax savings separate reduces the mental load and removes the temptation to treat that money as available cash.
Automate where possible
Automation can make tax saving feel much easier.
You might:
- Set up regular transfers based on your typical income
- Increase transfers after higher-income periods
- Review and adjust your savings rate periodically as your business evolves
The goal isn’t to automate perfectly. It’s to create a system that requires minimal effort while still giving you control.
When your tax savings process is as automatic as your other business systems, it becomes far easier to stay consistent without overthinking it.
When and how to adjust what you’re saving
Your tax savings percentage isn’t fixed. It’s normal for it to change as your income and expenses shift over time.
Adjusting doesn’t mean something went wrong. It means you’re paying attention.
When income increases
If your income increases, your savings amount may need to increase as well. This often happens after a strong quarter, a successful launch, or a period of consistent growth.
Rather than waiting until the end of the year, it helps to check in and adjust your saving percentage so it continues to reflect your current level of profit. Small adjustments along the way are easier than large corrections later.
When expenses change
Large or one-time expenses, such as investing in a coaching program, hiring a new team member or making larger purchases, can temporarily lower your taxable profit.
When profit is lower, the amount you need to set aside for taxes may also be lower for that period. This is another reason consistent tracking matters. It allows your saving percentage to respond to what’s actually happening in your business instead of staying on autopilot.
Periodic check-ins
A few intentional check-ins during the year can make a big difference.
Look at how much you’ve saved so far and compare it to how your income is trending. If your year is shaping up differently than expected, you can adjust your saving percentage up or down accordingly.
The goal isn’t to recalculate constantly. It’s to stay aware and make thoughtful adjustments as your business evolves.
Frequently asked questions
What percentage of my income should I set aside for quarterly taxes?
For many online business owners, 25–30% can be a reasonable starting point. The right percentage depends on your income level, business expenses, filing status, and whether state taxes apply. This range is meant to help you get started, not to be a precise calculation.
Should online business owners set aside separate amounts for federal and state taxes?
In most cases, no. A single tax savings account is usually sufficient.
Your savings percentage can be set high enough to account for both federal and state taxes together. Keeping everything in one place simplifies the process and makes it easier to stay consistent.
The most important thing is not separating accounts. It’s choosing a reasonable percentage and revisiting it as your income, expenses, or tax situation changes.
How do estimated taxes interact with self-employment tax?
Self-employment tax is separate from income tax, but it is included in your quarterly estimated payments. When deciding how much to set aside, it’s important to factor in both income tax and self-employment tax together.
What happens if I set aside more than I need?
Any extra tax savings isn’t lost. It can be applied toward future tax payments or refunded when you file your return. This is another reason a flexible, review-and-adjust approach works well, especially as your business grows.
What next?
You don’t need your quarterly tax savings perfectly dialed in right now. What matters is having a plan you understand and feel comfortable adjusting as your business evolves.
If you’re still getting oriented to how business taxes work, that’s completely normal. Before diving deeper into percentages and systems, it often helps to start with the basics.
That’s why I created a free guide:
Download: The Tax Basics Every New Business Owner Should Know
It’s a simple, no-panic foundation you can build on as your confidence grows.
