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Tax Reserve Calculator

How much should you set aside for taxes?

Taxes are the bill that surprises too many business owners. This calculator estimates how much to reserve based on your profit and business structure.

Enter Your Numbers

Your expected net profit for the full year (revenue minus all expenses including your salary).

How much profit have you made so far this year?

Your state's business income tax rate. Enter 0 for no-income-tax states.

How much have you already set aside for taxes this year?

The Tax Surprise Problem

Every April, business owners discover they owe more than they expected. The profit felt real during the year, but they spent it. Now they're scrambling for cash or taking on debt to pay taxes.

The solution is simple: reserve money as you earn it. If you set aside 30-40% of every profit dollar, tax day becomes a non-event.

How Business Structure Affects Taxes

The IRS self-employment tax rate is 15.3% (12.4% Social Security + 2.9% Medicare). For 2026, the Social Security wage base is $184,500—income above this is only subject to the 2.9% Medicare portion.

  • Sole Prop / Single-Member LLC: All profit flows to your personal return. You pay income tax plus 15.3% self-employment tax on everything.
  • S-Corp: You pay yourself a salary (subject to payroll taxes), but profit distributions avoid self-employment tax. Saves money at higher profit levels.
  • C-Corp: The corporation pays its own tax (21% federal). You only pay personal tax on what you take out as salary or dividends.

The Reserve Rule of Thumb

Most service business owners should reserve 30-40% of profit for taxes. If you're in a high-tax state or have high income, lean toward 40%. If you're in a no-income-tax state or have significant deductions, 30% may be enough.

The exact number matters less than the habit. It's better to over-reserve and get money back than to under-reserve and scramble.

Quarterly Estimated Taxes

If you expect to owe $1,000 or more in taxes, you're required to make quarterly estimated tax payments. Due dates are typically:

  • Q1: April 15
  • Q2: June 15
  • Q3: September 15
  • Q4: January 15 (of following year)

Missing these payments triggers penalties and interest. Your reserve account should fund these payments.

Note: This calculator provides estimates only. Tax situations vary significantly. Consult a tax professional for advice specific to your situation.

Sources

Frequently Asked Questions

How much should a small business set aside for taxes?

Most small business owners should reserve 30-40% of net profit for taxes. The exact amount depends on your business structure and state. Sole proprietors and single-member LLCs face the highest effective rate (around 37-42% including self-employment tax), while S-Corps can reduce this to 24-29% on distributions. If you are in a no-income-tax state, you can lean closer to 30%.

What is the self-employment tax rate for 2026?

The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. For 2026, the Social Security wage base is $184,500, meaning income above this threshold is only subject to the 2.9% Medicare portion. This tax applies to sole proprietors, single-member LLCs, and multi-member LLC partners on their share of business profit.

When are quarterly estimated tax payments due?

Quarterly estimated tax payments are typically due on April 15, June 15, September 15, and January 15 of the following year. If you expect to owe $1,000 or more in taxes for the year, you are required to make these payments. Missing them triggers underpayment penalties and interest from the IRS.

How does an S-Corp election reduce taxes compared to an LLC?

An S-Corp allows you to split income between a reasonable salary (subject to payroll taxes) and distributions (not subject to self-employment tax). For example, on $150,000 in profit, an LLC owner pays 15.3% self-employment tax on the full amount ($22,950). An S-Corp owner paying themselves a $80,000 salary only pays payroll taxes on the salary portion, saving roughly $10,710 in self-employment taxes.

What is the federal corporate tax rate for C-Corps?

The federal corporate tax rate for C-Corporations is a flat 21%. Unlike pass-through entities (sole props, LLCs, S-Corps), C-Corps pay tax at the entity level. Owners then pay personal income tax on any salary or dividends they receive, creating potential double taxation. C-Corps make sense primarily for businesses that retain significant earnings for reinvestment rather than distributing profits.

Should I open a separate bank account for tax reserves?

Yes. Keeping tax reserves in a separate high-yield savings account is one of the most effective ways to avoid the tax surprise. When profit hits your operating account, immediately transfer 30-40% to the reserve account. This creates a clear mental and financial boundary so you do not accidentally spend money earmarked for taxes. Many business owners who skip this step end up scrambling in April.

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