How Much to Set Aside for Small Business Taxes (And How to Avoid Surprises)

One of the most common questions small business owners ask is: How much should I be setting aside for taxes?

The short answer: it depends.

The better answer: with the right planning and consistent bookkeeping, it doesn’t have to feel confusing or stressful.

Let’s break this down in a simple, practical way so you can plan ahead with confidence.

Why Setting Aside Money for Small Business Taxes Matters

Unlike traditional employees, most small business owners don’t have taxes automatically withheld from every payment. That means it’s your responsibility to plan ahead.

Without a system in place, tax season can bring unexpected bills, cash flow issues, and unnecessary stress.

Setting money aside regularly helps you:

• Avoid last-minute scrambling

• Protect your cash flow

• Stay compliant

• Feel more in control of your finances

A General Rule of Thumb

While every business is different, many small business owners set aside 20% to 30% of their net income for taxes.

This range often covers:

• Federal income taxes

• Self-employment taxes

• State and local taxes (when applicable)

However, your actual percentage can vary based on:

• Business structure (LLC, S-Corp, Sole Proprietor)

• Profit level

• Location

• Available deductions and credits

That’s why relying on estimates alone isn’t always enough.

What Impacts How Much You Should Set Aside?

Several factors affect your tax responsibility:

Your Business Income

Higher profits typically mean higher tax obligations. As your business grows, your tax planning should adjust with it.

Your Business Structure

Different entity types are taxed differently. For example:

• Sole proprietors and single-member LLCs often pay self-employment tax

• S-Corps may reduce certain tax liabilities through payroll structure

• Partnerships and corporations follow different reporting rules

Your Deductions

Business expenses can lower your taxable income. Accurate bookkeeping ensures deductions are properly tracked and applied.

Your State and Local Requirements

Tax rates and requirements vary depending on where your business operates.

How to Set Aside Money the Right Way

Here are a few simple strategies that work well for many business owners:

Open a Separate Tax Savings Account

Transfer your tax savings into a dedicated account so it doesn’t get mixed with operating funds.

Set Aside Money Weekly or Monthly

Instead of waiting until the end of the year, move a percentage of income regularly. Smaller, consistent transfers are easier to manage.

Review Your Numbers Often

Tracking income and expenses monthly helps you adjust your savings if your revenue changes.

Why Monthly Accounting Makes This Easier

Trying to estimate taxes without accurate financial records is like guessing in the dark.

With monthly accounting services from Business Accounting Systems, your books stay organized and up to date.

That means:

• Your income and expenses are tracked properly

• Financial reports stay accurate

• Potential tax obligations are easier to anticipate

• Planning becomes proactive instead of reactive

Instead of waiting until tax season to find out where you stand, you have visibility all year long.

Common Mistakes to Avoid

Many business owners run into trouble by:

• Spending money that should have been saved for taxes

• Mixing personal and business finances

• Waiting until tax season to organize records

• Estimating without reviewing real numbers

Avoiding these mistakes starts with consistency and professional support.

How BAS Helps Business Owners Stay Prepared

At Business Accounting Systems, we help clients stay tax-ready throughout the year — not just in April.

Our monthly accounting services include:

• Ongoing bookkeeping and reconciliations

• Financial reporting and insights

• Payroll processing and compliance support

• Tax-ready financial organization

This allows business owners to plan ahead, avoid surprises, and feel confident about their numbers.

Final Thoughts

There’s no one-size-fits-all number when it comes to setting aside money for small business taxes. But with good financial habits and accurate records, it becomes much easier to manage.

If you want to avoid last-minute stress and build a stronger financial foundation, consistent accounting support makes all the difference. Planning ahead today creates smoother tax seasons tomorrow.