How Much Should Freelancers Set Aside for Taxes?
Most freelancers in English-speaking countries set aside between 25% and 35% of their net income (income after business expenses) for tax. The right percentage depends on your country, income level, business structure, and deductible expenses. The safest approach is to calculate an estimate using your actual figures, not a flat guess.
Why freelancers get caught off guard by tax bills
When you are employed, your employer deducts income tax before you see your pay. As a freelancer, you receive the full invoice amount — and it is your responsibility to set aside the portion that belongs to the tax authority. This catches many new freelancers off guard, particularly in the first year, when there is no prior-year tax liability to warn them.
The problem compounds because freelance income often arrives in uneven bursts. A good month followed by a quiet month makes it tempting to spend freely during the good month — and leave nothing for the tax bill that arrives months later.
The fix is simple in principle: treat a percentage of every payment as not yours to spend, and move it to a separate account the day it arrives.
What percentage should freelancers set aside for tax?
The right percentage depends on your country and income level. Widely-cited starting points — not guarantees — for common markets are:
| Country | Common starting estimate | Notes |
|---|---|---|
| United States | 25–30% of net income | Covers federal income tax + self-employment tax (~15.3%); state income tax is additional |
| United Kingdom | 20–30% of net profit | Income tax (20–40%) + Class 4 National Insurance; varies by band |
| Canada | 25–35% of net income | Federal + provincial income tax; self-employment CPP contributions apply |
| Australia | 25–35% of net income | Income tax + Medicare levy; GST obligations may also apply above the registration threshold |
These are rough starting guides only. Your actual liability depends on your total income, your deductions, your filing status, whether you are registered for GST/VAT, and other factors specific to your situation. Use them as a floor, not a ceiling — it is always safer to set aside a little more and return the surplus to yourself than to come up short. For the United States, the IRS Self-Employed Individuals Tax Center is the authoritative reference.
What counts as a deductible business expense?
Tax authorities in most countries allow self-employed people to deduct legitimate business expenses from their income before calculating tax. Common deductible categories — though rules vary by country, so confirm with a qualified professional — include:
- Home office costs (a proportional share of rent, utilities, and internet if you work from home)
- Equipment purchased for work (computers, monitors, cameras)
- Software and subscriptions used for work
- Professional development, courses, and books directly related to your work
- Business insurance
- Professional fees (accountants, legal advice)
- Travel and transport for work purposes
- Marketing and advertising costs
Tracking deductions accurately can meaningfully reduce your taxable income. A dedicated expense tracker makes it easier to categorise spending throughout the year rather than reconstructing it at tax time — you can grab the expense tracker if you want a head start.
How to estimate your tax bill using a spreadsheet
A spreadsheet-based tax estimate works in four steps:
Step 1 — Calculate your total gross income
Add up every payment received from clients in the period (month, quarter, or year) you are estimating for. If you invoice in different currencies, convert to your home currency using the rate at the time of receipt.
Step 2 — Subtract your business expenses
List every deductible expense for the same period. Deduct the total from your gross income. The result is your approximate net profit — the figure most tax systems use as the starting point for self-employment income tax.
Step 3 — Apply your estimated tax rate
Multiply your net profit by your estimated tax percentage. For example, if your net profit for the year is $40,000 and you estimate a combined rate of 28%, your estimated tax bill is $11,200. This is a rough estimate only — your actual bill will be calculated by your tax authority based on the rules in your jurisdiction.
Step 4 — Divide by months to get a monthly set-aside
Divide the annual estimate by 12 (or by the number of remaining months if you are mid-year). That figure is what you should be moving to a separate tax savings account each month, regardless of whether your income is high or low that month.
What does the SheetReady Freelancer Income & Tax Estimator do?
The Freelancer Income & Tax Estimator ($24) is a Google Sheets and Excel file that automates the calculation above. You log your monthly income and business expenses; the template calculates your net profit, applies the tax percentage you input for your situation, and shows you the estimated amount to set aside — broken down by month and by quarter.
It does not calculate your actual tax liability — no spreadsheet can replace a tax professional or your country's official calculator. What it does is remove the mental friction of doing the maths yourself each time money comes in, and it makes the "how much do I owe roughly?" question answerable at a glance. If you want to skip the setup, you can use the freelancer tax estimator directly.
The quarterly summary view is particularly useful for countries where self-employed people file and pay tax quarterly (such as estimated quarterly payments in the United States or payment-on-account in the United Kingdom).
Should freelancers keep tax savings in a separate account?
Yes. Keeping your tax set-aside in a dedicated account — separate from your operating account and your personal account — is one of the most effective habits a freelancer can build. When the tax bill arrives, the money is already there. The psychological benefit is equally real: money in a separate account labelled "tax" does not feel available to spend.
A high-interest savings account or a simple second current account works. The account does not need to be anything special — it just needs to be separate.
What happens if you do not set aside enough?
If your actual tax liability exceeds what you saved, you will still owe the full amount. Most tax authorities charge interest and, in some cases, penalties on late or underpaid tax. In many countries, if your tax bill exceeds a certain threshold, you may be required to make advance payments the following year — effectively paying two years of tax in one, which is a significant cash flow shock.
This is precisely why setting aside more than you think you need — and correcting it downwards once you know your actual bill — is safer than setting aside less.
How to handle tax when income varies month to month
Percentage-based set-asides work well for variable income because the amount you save scales with the amount you earn. In a high-revenue month, you set aside more; in a quiet month, you set aside less. As long as you apply the percentage consistently to every payment received, the total saved across the year tracks your total income.
The mistake to avoid is setting aside a fixed dollar amount regardless of income — this undersaves in good months and can strain cash flow in quiet ones.
Get the Freelancer Tax Estimator
Stop guessing how much to set aside. The Freelancer Income & Tax Estimator lets you log income and expenses each month and see your estimated tax set-aside in real time — quarterly and annually. It works in Google Sheets and Excel, with no formulas to write yourself. Not ready for the paid tool yet? Start with the free Money Tracker.
Frequently asked questions about freelancer tax
I am a brand-new freelancer. When should I start setting aside tax money?
From your very first payment. The liability begins the moment you earn income as a self-employed person. Waiting until the end of the year to start saving is a common mistake that creates a very stressful first tax season.
Does the SheetReady tax estimator work for my country?
The template is designed to be country-neutral. You enter the tax rate that applies to your situation. It then applies that rate to your net profit figures. You will need to know (or estimate, with professional help) what rate to enter — the template does the arithmetic, not the tax determination.
What if I earn below the tax threshold in my country?
Most countries have a tax-free allowance or basic threshold below which no income tax is owed. You may still owe self-employment contributions (National Insurance in the UK, self-employment tax in the US) even on lower incomes. Check the rules for your country.
Should I register for VAT / GST?
VAT, GST, and similar consumption taxes are separate from income tax and have their own registration thresholds and rules in every country. This article covers income tax estimates only. Consult a local accountant or your tax authority's website for VAT/GST guidance.
Can the spreadsheet help me with multiple currencies?
The SheetReady Freelancer Income & Tax Estimator works in one currency. If you invoice in multiple currencies, convert to your home currency before entering figures.