How Much Should a Small Business Owner Save for Taxes Each Month
One of the most stressful parts of running a business is not knowing how much to set aside for taxes. You bring in money, pay your bills, try to keep the business growing, and then tax season hits and suddenly the IRS wants far more than you expected.
The good news is that estimating how much to save each month is much simpler than most people realize. You don’t need spreadsheets or advanced formulas. You just need a clear, consistent strategy that fits your income and business structure.
This guide breaks down the easiest and most reliable way to save for taxes every month so you never get caught off guard again.
Why You Need a Monthly Tax Savings Plan
Small business owners don’t have taxes withheld from their pay the way traditional employees do. The IRS expects you to pay taxes as you earn money.
That means if you don’t save a portion of your income each month, your quarterly tax bill can feel like a punch in the gut.
A monthly plan helps you:
Avoid surprises
Build healthy financial habits
Reduce stress
Stay compliant with IRS rules
Easily make quarterly estimated payments
A predictable system is the key to staying tax-ready year-round.
The Simple Percentage Method
The easiest and most accurate way to save for taxes is by using a percentage of your profit. Forget complex calculations. Just choose a rate, transfer that percentage into a separate tax savings account each month, and stay consistent.
Your tax percentage depends on your profit level and how your business is structured.
How Much to Save Based on Your Business Type
If you’re an LLC or Sole Proprietor
Save 25 to 30 percent of your net profit.
This covers:
Federal income tax
Self-employment tax
State tax (depending on where you live)
Example
If your business made $8,000 in profit this month, save between $2,000 and $2,400.
If your income is higher or you expect to cross into a higher bracket, lean closer to 30 percent.
If you’re an S Corp
Save 20 to 25 percent of your total profit after your salary.
As an S Corp owner, you only pay payroll taxes on your W-2 salary. The remaining profit (called distributions) avoids self-employment tax, so your tax rate is usually lower.
Example:
Your business profit is $12,000 for the month.
Your reasonable salary is already paid through payroll.
You set aside $2,400 to $3,000 for taxes.
If you live in a high-tax state
Owners in states like California, New York, or Oregon should add an extra 3 to 5 percent to their monthly savings rate to cover additional state tax obligations.
Why Profit, Not Revenue, Matters
Many business owners make the mistake of saving based on their revenue instead of their profit.
Revenue is the total money you bring in. Profit is what’s left after your expenses.
The IRS taxes profit, not gross deposits. That’s why clean bookkeeping is essential. If your books are behind or inaccurate, it becomes impossible to calculate tax savings correctly.
Use a Separate Tax Savings Account
Once you calculate the amount to save each month, move the money into a dedicated tax savings account.
This keeps it out of sight and prevents accidental spending.
Many business owners like to use:
A high-yield savings account
A secondary business savings account
A banking app with buckets or envelopes
Separating tax money from operating cash is one of the biggest stress reducers in business finance.
Adjust as Your Income Changes
Your business might have slow months and busy months.
Instead of saving a flat dollar amount, stick with your tax percentage. This adjusts naturally as your income rises or dips.
If you have a big launch, a busy season, or a large new client, increase your monthly transfer.
If you have a slow month, your tax savings automatically scale with you.
Quarterly Payments Made Easy
Once you’ve been saving every month, paying your quarterly estimated taxes becomes simple.
You already have the money sitting in your tax account, so the payment is just a transfer — not a financial crisis.
Quarterly IRS payment months are:
April
June
September
January
If you stay consistent, you’ll never have to scramble again.
Signs You’re Not Saving Enough
If any of these sound familiar, you’re under-saving:
You dread tax season
Your accountant tells you that you’re behind every year
Your quarterly payments feel impossible to afford
You regularly dip into money that should be set aside
You’re guessing instead of using real numbers
A simple percentage plan solves all of this.
How Bookkeeping Helps You Save the Right Amount
Accurate monthly tax savings depend on accurate financials.
If your bookkeeping isn’t updated each month, you’re only estimating based on guesses.
That leads to under-saving and tax surprises.
Clean, consistent books let you:
Calculate real profit
Apply the right savings percentage
Predict tax bills before they happen
Build true financial confidence
This is exactly why most business owners partner with a bookkeeper as soon as they can. It removes the guesswork and keeps their tax savings plan on track.
Final Thoughts
Saving for taxes doesn’t have to feel overwhelming. With the right percentage and a simple system, you can stay ahead of every payment and avoid stress during tax season.
If you want help calculating your monthly tax savings, organizing your books, or staying tax-ready year-round, Red Leaf Bookkeeping can guide you every step of the way.
👉 Book a free Money Clarity Call and get a simple tax savings plan customized for your business.