How Much Should I Save Each Month for Taxes?

Start with profit, not gross sales

The most common mistake is saving based on revenue instead of profit. Taxes are driven by taxable income — not the total deposits in your bank account.

A business with $20,000 in monthly sales and $12,000 in monthly expenses has about $8,000 of monthly profit before owner taxes. Saving based on $20,000 would probably be too high; saving nothing because cash looks tight could be a painful surprise.

A simple monthly tax savings formula

Monthly tax savings = estimated monthly profit × estimated tax percentage

For many small business owners, a starting savings percentage falls somewhere between 20% and 35% of profit. The right number depends on filing status, state, entity structure, deductions, credits, and other income — including a spouse’s W-2.

Why the percentage changes

Your savings target changes when your business changes. A sole proprietor, single-member LLC owner, partnership, S-corp owner, and C-corp owner can all face different tax mechanics.

Self-employed taxpayers also owe self-employment tax — the Social Security and Medicare taxes that would otherwise be split between employer and employee. That adds roughly 14–15% on top of income tax before deductions.

Use a separate tax savings account

One of the easiest systems is to move a fixed percentage into a separate account every month. This keeps tax money from blending into operating cash and prevents the end-of-quarter scramble.

You can transfer a percentage of monthly profit, a percentage of owner draws, or a fixed dollar amount based on a tax projection. The best method is the one you will actually follow and update.

Recalculate quarterly

Monthly savings should not be set once and forgotten. If profit increases, your quarterly payment should increase. If it drops, you may be able to reduce it. The IRS quarterly schedule is fixed; your estimates should float with your actual results.

Practical example

Assume average monthly profit of $10,000 and a savings target of 30%. You move $3,000 per month into a tax savings account. After three months, you have around $9,000 set aside for the quarterly payment. When profit increases, the transfer increases. When it drops, you adjust.

Do not wait until tax season to find out whether you saved enough. A monthly system turns taxes from a surprise into a planned operating cost.