How To Set Aside Money For Taxes As A Freelancer
How To Set Aside Money for Taxes as a Freelancer
If you’re new to freelancing, few things sting more than realizing you owe a large tax bill you didn’t plan for. Unlike traditional employees, freelancers don’t have taxes withheld automatically — which means you must set aside money yourself. Understanding how much to save and when to pay it can save you from IRS penalties and stressful surprises.
Why Freelancers Need To Plan Ahead
When you freelance, you’re responsible for:
- Income tax
- Self-employment tax (Social Security + Medicare, totaling 15.3%)
- Quarterly estimated taxes
Because these amounts are not withheld from your payments, planning ahead is essential.
Step 1: Know Your Tax Rate
A simple rule of thumb is to set aside 25–30% of your net income for federal taxes.
You may need to save more if:
- You live in a high-tax state
- You earn a high income
- You have minimal business deductions
If you want to be precise, calculate your estimated tax using your prior year’s return or accounting software — but the 25–30% rule works well for most freelancers.
Step 2: Open a Separate Tax Savings Account
Mixing tax money with your everyday spending makes it easy to fall behind.
Instead:
- Open a separate savings account
- Transfer a percentage of each payment you receive
- Avoid touching this money except to pay quarterly taxes
This simple habit dramatically reduces tax-time stress.
Step 3: Set Aside Money Every Time You Get Paid
Don’t wait until the end of the month — or worse, the end of the year.
Each time a client pays you:
- Deposit the income in your business account
- Immediately transfer your saved tax percentage to your tax account
Treat it like a bill you must pay to your future self.
Step 4: Pay Quarterly Estimated Taxes
Freelancers must pay taxes four times per year to avoid penalties. Quarterly deadlines are:
- April 15
- June 15
- September 15
- January 15 (of the following year)
Missing these payments can cause IRS penalties even if you pay your full amount at tax time.
Step 5: Track Your Deductions
The more deductions you track, the less tax you owe — which means you don’t need to set aside as much. Common freelancer deductions include:
- Home office expenses
- Business software and tools
- Mileage and travel
- Phone and internet
- Equipment and supplies
- Advertising and marketing
- Contract labor
Good bookkeeping protects your income and reduces your tax bill.
Step 6: Adjust Throughout the Year
Your income may fluctuate — some months high, some months low. Review your finances regularly and adjust how much you’re saving.
If you have a high-earning month, set aside more.
If you earn less, adjust accordingly.
Step 7: Don’t Forget State Taxes
Depending on your state, you may need to save an additional:
- 3–13% for state income tax
- Local taxes (city or county) in some areas
Check your state’s tax requirements to avoid surprises.
What Happens If You Don’t Set Aside Enough?
If you come up short at tax time, you may face:
- IRS underpayment penalties
- A large unexpected tax bill
- Cash-flow stress
- Difficulty catching up in future quarters
Planning ahead prevents these issues entirely.
Mytax.dog Can Help Freelancers Stay Organized and Compliant
Freelancing comes with freedom — but also tax complexity. Mytax.dog can help you calculate how much to set aside, track deductions, estimate quarterly taxes, and file your return accurately.
We ensure you never fall behind, never overpay, and always stay IRS-compliant.
Don’t let taxes overwhelm you — let Mytax.dog make freelancing easier and stress-free.
