"How much should I save for taxes?" is the single most common question we get from freelancers, contractors, and self-employed professionals. The generic answer you'll find online is "25-30%." That's a decent starting point, but the real answer depends on your income level, your deductions, your filing status, and your state. Let's break it down properly.
Why Self-Employed Taxes Are Higher
When you're a W-2 employee, your employer pays half of your Social Security and Medicare taxes (7.65%), and you pay the other half. When you're self-employed, you pay both halves - the full 15.3%. This is called self-employment tax, and it's on top of your regular federal and state income tax.
This is the part that catches most new freelancers off guard. You're not just paying income tax - you're paying an additional 15.3% on your net earnings up to the Social Security wage base ($176,100 in 2025), plus 2.9% Medicare tax on everything above that.
General Savings Guidelines
| Annual Net Income | Suggested Savings Rate | What You're Covering |
|---|---|---|
| Under $40,000 | 20-25% | SE tax + low federal bracket + state |
| $40,000 - $90,000 | 25-30% | SE tax + 22% bracket + state |
| $90,000 - $170,000 | 30-35% | SE tax + 24% bracket + state |
| $170,000+ | 35-40% | SE tax + 32%+ bracket + state |
These are rough guidelines based on single filers with standard deductions. Your actual rate could be higher or lower depending on your specific situation, deductions, and state tax rates.
Arizona has a flat state income tax rate of 2.5% as of 2023. This is one of the lowest in the country, which is good news for self-employed Arizonans. But you still need to factor it in.
A Real-World Example
Let's say you're a single freelance graphic designer in Arizona who earned $80,000 in net profit (revenue minus business expenses) this year:
- Self-employment tax: $80,000 x 92.35% x 15.3% = ~$11,304
- Federal income tax: After standard deduction ($15,200) and SE tax deduction (~$5,652), your taxable income is roughly $59,148. Federal tax = ~$8,400
- Arizona state tax: ~$1,479 (2.5% flat rate, simplified)
- Total estimated taxes: ~$21,183
- Effective rate: ~26.5% of gross net income
So saving 27-28% of every payment would keep this person on track. If they had significant deductions (home office, equipment, etc.), the number could be lower.
The System: How to Actually Do It
Knowing the percentage is only half the battle. The other half is building a system that makes it automatic. Here's what we set up for our clients:
- Step 1: Open a separate savings account. Label it "Taxes." This is not optional. Keeping tax money in your operating account is the fastest way to accidentally spend it.
- Step 2: Transfer your percentage immediately. Every time you receive a payment, transfer your savings percentage to the tax account before you spend anything. If you earn $5,000 and your rate is 28%, move $1,400 immediately.
- Step 3: Make quarterly payments from the tax account. On the quarterly deadlines (April 15, June 15, September 15, January 15), pay the IRS and your state directly from this account.
- Step 4: Adjust annually. At the end of the year, compare what you saved to what you actually owe. Adjust your percentage for the next year accordingly.
Use a high-yield savings account for your tax reserve. At current rates, you can earn 4-5% APY on money that's just sitting there waiting for quarterly payments. On a $20,000 balance, that's $800-1,000 in free interest per year.
What About Deductions?
Your savings rate is based on net income - meaning revenue minus legitimate business deductions. The more deductions you have, the lower your tax obligation and the less you need to save. This is one of the biggest reasons to keep meticulous records of your business expenses. Common deductions that significantly reduce your tax bill include home office, health insurance premiums, retirement contributions, and equipment purchases. (See our complete deductions guide for more.)
What Happens If You Don't Save Enough?
If you owe more than $1,000 at tax time and you haven't made adequate quarterly payments, the IRS will charge you an underpayment penalty. The penalty rate fluctuates (it was 8% in 2024) and is calculated on the amount you underpaid for each quarter. It's not devastating, but it's completely avoidable with a proper system.
Let Us Calculate Your Exact Number
The percentages above are guidelines. During onboarding, we calculate each client's personalized tax savings rate based on their actual income, deductions, filing status, and state. We then help set up the automatic system so you never have to think about it again.
If you're currently guessing at how much to save - or worse, not saving anything - book a consultation and we'll get you dialed in before the next quarterly deadline.