Set aside a fixed share of every freelance payment for taxes on the day it arrives, and keep it in a separate account you don’t spend from. How big that share should be depends on your country, your business form and your income, so get the number from your tax office or an accountant. Until you know, round up: a leftover becomes a bonus, a shortfall becomes a debt.
A tax set-aside is the part of each payment you move out right away because it belongs to the tax office, not to you. When you’re employed, your employer does this before you ever see your pay. When you freelance, nobody does, so the whole payment lands in your account and looks like yours.
This post is about the habit, not the rates. Tax rules differ by country and by your own situation, so this isn’t tax advice. What follows works with whatever share your accountant gives you.
Why do freelancers get caught out by taxes?
A few things stack up against you:
- No withholding. Nobody takes the tax out for you, so every payment looks bigger than it really is.
- A long delay. You earn now and pay later, often months later and often in a quiet month. Money that sits in your main account that long tends to turn into rent and groceries.
- Uneven income. A great month makes you feel ahead. The bill for that month may land when work is slow.
- A fuzzy number. Expenses, deductions and contributions make the exact amount hard to guess, so it’s tempting to put off thinking about it.
None of this is a discipline problem. It’s a setup problem, and the fix is a setup too.
When should you set money aside for taxes?
The day the payment lands. Not at the end of the month, and not when the bill arrives. Every time money comes in:
- Move the tax share to your tax account, before you pay anything or look at what’s left.
- Write it down: the date, the payment and the amount you set aside.
- Only then split or spend the rest.
Doing it per payment has two benefits. You never face one big, painful transfer at the end of the year, because the work happens in small pieces. And the amount scales on its own: a small job sets aside a little, a big job sets aside more. You don’t need to forecast your year to get it roughly right.
Think of that share as money passing through you on its way to the tax office. It was never part of your income to spend.
How much should you set aside for taxes?
The best source is an accountant or your tax office’s own guidance for self-employed people. Your share depends on things a general article can’t know: where you live, how your business is registered, how much you earn in the year, what you can deduct, and whether there are social or health contributions on top of income tax.
A few principles help while you find out:
- When unsure, round up. Setting aside too much costs you little: after you pay, the leftover is a bonus. Setting aside too little turns into a debt at the worst moment. The two mistakes aren’t equal, so lean toward the safe one.
- Ask what the share applies to. Some people are told a share of every payment, others a share of profit after expenses. If you don’t know, take it from the full payment. It’s simpler and errs on the safe side.
- Revisit it once a year, or whenever your income changes a lot. In some countries a bigger year means a bigger share, so the number that worked last year may not fit this one.
Where should you keep money for taxes?
In a separate account
Tax money mixed with spending money gets spent. Put it in a separate account or card you don’t use for anything else, and name it plainly: "Taxes".
Then stop counting it. Your real balance is your main account, not main plus taxes. Since you’ll owe this money soon, keep it somewhere boring and easy to reach, not anywhere its value can go down before the due date.
Don’t borrow from it for a broken laptop or a dentist visit, either. That’s what an emergency fund is for. If the two live in the same place, the tax money quietly becomes the emergency money.
VAT and sales tax
If you charge VAT or sales tax on your invoices, that part was never yours at all. Set it aside in full, separately from your income tax share.
What if you have to pay tax in advance or quarterly?
In some countries the self-employed pay tax in advance during the year, monthly or quarterly, instead of one bill at the end. Ask your accountant whether that applies to you and which dates matter.
If it does, your tax account gets a rhythm: it fills with every payment you receive and empties on each due date. Put the dates in your calendar with a reminder a week before. The set-aside habit works the same either way. The only difference is how often the account empties.
What does saving for taxes on freelance income look like?
Say you’re a freelance photographer, and your accountant tells you to keep 25% of every payment for taxes. That number is purely illustrative, chosen because it makes the math easy. Your share may be higher or lower.
Over one quarter, four payments come in:
| Payment | Amount | Tax share (25%) | Left for you |
|---|---|---|---|
| Product shoot | $1,200 | $300 | $900 |
| Wedding | $2,800 | $700 | $2,100 |
| Headshots | $600 | $150 | $450 |
| Brand campaign | $4,000 | $1,000 | $3,000 |
| Total | $8,600 | $2,150 | $6,450 |
Each time, the tax share goes to the tax account on the day the money arrives. Only the "Left for you" column gets split into savings, debt and living. If you use pockets, that’s the amount you split; the 10/20/10/60 split shows how that works.
When the bill comes, $2,150 is waiting. If you owe $1,900, the $250 left over is yours to move to savings or a goal. If you owe more than you set aside, the gap is far smaller than if you had saved nothing, and you know to raise the share next time. Either way, nothing comes out of rent money.
How do you keep track of your tax savings?
Self-employed tax savings only help if you trust the number. A simple record goes a long way: each payment, how much you set aside, and the date. It gives you a running total to compare with what you expect to owe, and it saves your accountant time. Keep invoices and receipts for business expenses with it, and ask which of them count.
If you already split income into pockets, the tax share can also be one of the pockets instead of a step before the split. In Tenfold for iPhone you can add a pocket of your own, call it Taxes, and give it your share. Shares always add up to 100%, so the other pockets get a little smaller, which is honest: that money was never yours to spend. When you move it to the tax account, one tap marks it as set aside. For the rest of an uneven income, see how to budget with irregular income.
FAQ
Is this tax advice?
No. These are general habits for keeping tax money safe. Your rate, what it applies to and your due dates come from your tax office or an accountant.
What percentage should I set aside?
It depends on your country, your business form, your income and your deductions, which is why there’s no single number. Ask an accountant, and while you wait for an answer, round up.
What if I’ve already spent the tax money?
Start setting aside from the very next payment, so the gap stops growing. Then talk to your tax office or accountant early about the shortfall, rather than a week before the deadline.
Do I set aside tax on small payments too?
Yes, on every payment. Skipping small ones is how the account ends up short, and the habit is easier to keep when there are no exceptions.