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You just got paid. How much goes to taxes?
The most common first-year mistake: spending money that belongs to the IRS. Enter your payment amount and see the exact dollar split — tax reserve, operating, and profit — so you can move it today, not in April.
2026 IRS rates · Educational estimate · Not tax advice
Profit First Method
You just got paid. Where does it go?
Move the money the same day it arrives. Three accounts, fixed percentages — no spreadsheets, no guessing come tax time.
Your payment
The gross amount you were just paid
After expenses, before taxes — sets your bracket
Move this today
$2,000
to your tax reserve account — right now, before you spend anything
40% of this payment · covers SE tax, federal, and state
Tax reserve
$2,000
40%
Move to tax account now
Profit pull
$250
5%
Optional — skip if cash is tight
Operating
$2,750
55%
Stays in checking
Why 40%?
We round up to the next 5% to build a small buffer. Your actual bill is settled annually — quarterly estimates draw from this reserve throughout the year.
How this works
Based on the Profit First cash management system by Mike Michalowicz: every deposit gets split immediately into dedicated accounts. The tax reserve percentage is built from your estimated SE tax (if sole prop), your marginal federal bracket, and your state rate. Rounding up to the nearest 5% ensures a buffer. The 5% profit pull is a habit, not a requirement — skip it early on if cash is tight. Quarterly estimates come out of the tax account on schedule.
One more thing
At $80,000 in annual profit as a sole prop, you're paying roughly $11,304 in SE tax per year — that's on top of income tax. An S-corp election limits SE tax to your W-2 salary only. Worth modeling if you haven't already.
Also read
How to Pay Quarterly Taxes as a Small Business Owner
What estimated taxes are, when they're due, and how to avoid surprise bills by saving the right amount throughout the year.
Read Tax planningHow Much Should I Save Each Month for Taxes?
A simple monthly savings formula, why profit — not revenue — is the right starting point, and how to build a system you'll actually follow.
Read Tax planningSelf-Employment Tax Explained: Rates, Calculation, and How to Reduce It
Self-employment tax is 15.3% on net profit — on top of income tax. How SE tax is calculated, what the deductible half actually saves, and the three ways to reduce it.
ReadWork with Matt
Ready to build a plan?
Getting the reserve habit right is step one. Step two is making sure your entity structure, quarterly estimates, and deductions are actually working together — that's the planning conversation.
Tax services provided through Matt Reese, CPA. This page is educational and does not constitute tax or investment advice.