In this video Donna Genie explains why the common advice to set aside 25‑30% of business profit for taxes is often inaccurate and can cost owners money. She clarifies that the percentage should be applied to profit, not revenue, and outlines the four “layers” that determine an individual’s effective tax rate: (1) self‑employment tax (≈15.3% on net earnings up to the wage base), (2) federal income‑tax bracket, which depends on the entire household’s income, (3) state income tax, which varies dramatically by jurisdiction, and (4) the business entity type, which affects withholding and pass‑through taxation. Based on these layers she offers more nuanced rules of thumb—20% for side‑hustles under $30k profit, 25‑30% for solo‑owner profits $50‑100k, and up to 35% for high earners in high‑tax states. She then moves to the mechanics: open a dedicated tax‑savings account, automate transfers, and treat the balance as the IRS’s money. She stresses the need for quarterly estimated payments (mid‑April, June, October, January) and explains the Safe Harbor rule (pay 100% of last year’s tax to avoid penalties). Finally, she warns that once profit consistently exceeds $75‑100k, simple percentages are insufficient; owners need full tax‑planning, which her firm Calculated Moves provides via a discovery call.
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If you're saving 30% for taxes, you're probably saving way too much or way too little. And weirdly, both of these cost you money. So here's the quick answer everybody gives: set aside 25 to 30% of your profit for taxes. Fine, write it all down. But if you stop this video right here, there's a decent chance your number's wrong for you specifically. And by the end of this video, you'll know exactly what your number actually is and what to do with the money once you've set it aside. First, the mistake that wrecks more First-year owners than anything else. That percentage comes off your profit, not your revenue. Not when it's your bank account. What's left over after expenses is profit. So if your business brings in $200,000 and you spend $150,000 running it, you're not setting aside taxes on $200,000. You're setting aside taxes on the $50,000 you actually got to keep. Get this backwards in one direction and you're starving your business to overfund a tax account. Get it backwards in the other direction thinking. I only took home a little, so taxes will be nothing, while ignoring what profit actually was on paper. And April is going to hurt. Profit, not revenue. If you take one thing from this video, that is the thing. Okay, so why isn't there one magic percentage? Because your tax rate is built from a stack of things that are different for every single business owner. The first layer is self-employment tax. This is the one W-2 employees never see because their employer pays half and is kind of invisible. When you work for yourself, you pay both halves, roughly 15.3%, on your net earnings, up to a wage base that sits around $170,000 and adjusts every year. So that 15.3% exists before you've paid a dime of income taxes, which is why new business owners are always shocked. They compare their business income to their old paycheck and forget there's a whole nother tax. Underneath there. The second layer is your federal income tax bracket. And here's the catch. It's not based on just your business alone. It's based on your total household picture. So your spouse's W-2, investment income, a rental, all of it stacks together to determine what your rate is and your business profit gets taxed at that. 2 contractors with identical businesses can owe wildly different amounts because one has a spouse earning $650,000. Figures and the other does not. So quick pause here because this is exactly the kind of thing we untangle every day. If you're listening to this thinking, I genuinely don't know what my stack looks like, that's fixable in just one conversation. Book in a discovery call with us with the link in that description and we'll map out your actual number instead of a YouTube guess. Sorry. Back to the layers. Let's look at layer 3. That's State income tax. If you're in Florida, Texas, Tennessee, congratulations, that layer is zero. But if you're in California or New York, you might be adding 10% more on top of everything federal. And that swing alone is why one national rule of thumb just can't work. So you've got to check your state. Layer 4 is your entity type. So if you're an S corporation owner paying yourself a salary, part of these taxes are already being withheld from that paycheck. Just like when you had a W-2 job. So when you're not reserving 30% on everything, you're mainly reserving for the profit that passes through on the top of your salary. Sole proprietors and single-member LLCs, on the other hand, have nothing withheld anywhere. So that full weight lands on what they set aside. So with all that said, here's some better rules of thumb than one flat number. Now, a side hustle, if you're making under $30,000 in profit with a day job doing your withholding, maybe around 20% might cover it. A full-time solo, Making somewhere between $50,000 to $100,000 in profit? That's where the classic 25% to 30% lives. Higher earner and sitting in a high tax state? Push that on up to 30% or 35%. Those are some starting points, not the gospel, but they're closer than the one size fits all. Now, the mechanics. Because knowing your percentage does nothing if the money actually isn't there. Open a separate savings account, ideally at a different bank than your operating account, and call it what it is. The tax account. So every time money comes in, or every Friday if that's easier, move your percentage over there automatically. Then treat that account like it's the IRS's money being stored at your house, because functionality is what it is. If you've read Profit First, this is the idea. It works for the same reason. Money you can't casually see is money you can't casually spend. Now one more thing, and people miss this constantly. Setting the money aside is not the same as paying it. The IRS wants their cut throughout the year in 4 quarterly estimated payments. Mid-April, mid-June, mid-October, and mid-January. If you skip them, you get the underpayment penalties, which are calculated off the IRS interest rates that have been genuinely pretty painful lately. This is not the sleepy 3% penalty of a decade ago. The escape hatch is the Safe Harbor rule. If you pay in 100% of last year's total tax, $110,000, Uh, percent if you're a higher earner. Spread that across those 4 dates and the IRS leaves you alone on the penalties, even if you end up owing more in April. That one rule is worth the whole video for a lot of people. Here's the honest ceiling on all of this though. Rules of thumb are for when guessing wrong costs you a few hundred bucks. Once your profit is consistently sitting at $75,000 to $100,000 and on up, guessing wrong costs you real money in both directions and penalties if you're under and thousands parked interest free with the government if you're over. At that level, the question stops being, what percentage should I have to save? And becomes, what should my tax bill even be? And that's a planning question, not a savings question. That's what we do here at Calculated Moves. If your business has grown to the point where a percentage off a YouTube video doesn't cut it anymore, book in a discovery call with us. The link's in the description. We can run your actual numbers, set your quarterly payments so there are no April surprises, and look for the planning moves that shrink bill itself, not just cover it. So grab the link below and let's find your real number.
