If you’re self-employed or a freelancer, one of the biggest (and most stressful) questions is:
“How much should I be saving for taxes?”
Unlike a traditional job where taxes are taken out of each paycheck, those who are self-employed or freelancers are responsible for setting money aside themselves and, if you don’t plan for it, that tax bill can be higher than you thought at tax time.
A GOOD GENERAL RULE
Set aside 25% to 35% of your income for taxes.
Where you fall in that range depends on:
- Your total income
- Your state (especially if you’re in California)
- Whether you have deductions or business expenses
Why It’s Higher Than You Think
You’re responsible for:
- Federal income tax
- State income tax (if applicable)
- Self-employment tax (Social Security + Medicare)
That self-employment tax alone is 15.3% on your net income, which is why the percentage feels higher than a typical W-2 job.
Instead of trying to calculate everything perfectly each month, keep it simple:
- Every time you get paid, set aside a percentage immediately
- Put it in a separate savings account, if possible
- Treat it like it’s not your money
This avoids the “I’ll figure it out later” trap and will have the amount ready for the estimated taxes paid quarterly. You simply pay all the set aside funds to the estimated taxes on April 15th, June 15th, September 15th and January 15th.
Freelancers typically need to make these quarterly estimated tax payments to the IRS (and state, if applicable).
If you don’t:
- You could owe penalties
- And a large lump sum at tax time
HOW TO LOWER WHAT YOU OWE
This is where strategy comes in. You may be able to reduce your tax bill through:
- Business expenses
- Retirement contributions
- Health insurance deductions
- Entity structure (in some cases)
This is why two individuals who are self-employed, making the same income, can owe very different amounts.
You Don’t Have to Navigate This Alone
Self-employment income comes with flexibility, but also complexity. If you’re unsure how much you should be setting aside, or whether you’re paying too much (or too little), it’s worth having a plan tailored to your situation.
Let’s talk.