How Much Should a New Aba Practice Set Aside for Taxes?

2026-08-21

Learn how much a new ABA practice should set aside for taxes, including federal, state, and self-employment rates, plus practical steps to estimate and save.

Starting an ABA practice brings many financial questions, and taxes are often the most pressing. The short answer: plan to set aside 30% to 40% of your net income for taxes in your first year. This covers federal income tax, self-employment tax, and state taxes. But the exact amount depends on your business structure, location, and revenue. This guide breaks down the numbers and gives you a clear plan to avoid surprises.

Why 30% to 40% Is a Safe Starting Point

For a new ABA practice, you are likely operating as a sole proprietor, LLC, or S-corp. Each structure has different tax implications, but the 30% to 40% range works as a baseline for most owners.

Here is what that percentage includes:

Federal income tax: Marginal rates range from 10% to 37%, but most new owners fall in the 22% to 24% bracket after deductions.
Self-employment tax: If you are a sole proprietor or LLC owner, you pay 15.3% (12.4% for Social Security and 2.9% for Medicare) on net earnings.
State income tax: Rates vary from 0% (in states like Texas and Florida) to over 13% in California. The average is around 5% to 7%.

So, a 30% to 40% set-aside covers the combined burden. For example, if your practice nets $80,000 in its first year, setting aside 35% means $28,000 for taxes. That leaves you $52,000 for living expenses and reinvestment.

Calculate Your Effective Tax Rate

Your effective tax rate is the percentage of your net income that goes to taxes. To estimate it, follow these steps:

Estimate your net income: Subtract all business expenses (rent, supplies, software, marketing, payroll, etc.) from your gross revenue.
Calculate self-employment tax: Multiply net income by 15.3%.
Estimate federal income tax: Use the IRS tax brackets for 2026 (single or married filing jointly). For a single filer with $80,000 net income, the federal tax is roughly $11,600.
Add state tax: Use your state’s flat or marginal rate. For example, if your state rate is 6%, that’s $4,800.
Total tax burden: Add all three. In this example: $12,240 (self-employment) + $11,600 (federal) + $4,800 (state) = $28,640. That’s about 35.8% of net income.

Use this formula to get a personalized number. If you have employees, your payroll taxes are separate, but your own income tax still follows this pattern.

Set Aside Money Quarterly

The IRS expects you to pay taxes quarterly if you expect to owe more than $1,000. For a new practice, that’s almost always the case. Quarterly estimated payments are due:

April 15
June 15
September 15
January 15 (of the next year)

To avoid penalties, you must pay at least 90% of your current year’s tax liability or 100% of last year’s liability (if you had any). Since you’re new, you’ll likely pay based on your current year’s estimate.

Practical step: Open a separate savings account specifically for taxes. Each time you receive a payment, transfer 30% to 40% of the net profit into that account. This prevents spending money you’ll owe later.

What If You’re an S-Corp?

If you choose S-corp status, you must pay yourself a reasonable salary, and payroll taxes (Social Security and Medicare) are withheld from that salary. The corporation also pays its share. Your salary is subject to FICA taxes, but your distributions are not subject to self-employment tax. However, you still pay income tax on distributions.

For an S-corp, your total tax burden might be slightly lower, but you have additional payroll processing costs. A common rule of thumb is to set aside 25% to 30% of your total income (salary plus distributions) for taxes. But because payroll taxes are withheld, you may see a lower quarterly payment. Still, keep the 30% to 40% range until you have a full year of data.

Deductions That Lower Your Tax Bill

Every dollar of deductible expenses reduces your taxable income. For a new ABA practice, common deductions include:

Clinical supplies: Therapy materials, assessment tools, and office supplies.
Software subscriptions: Practice management, EHR, billing, and scheduling software (e.g., $100-$300 per month).
Rent and utilities: If you have a physical clinic, a portion of rent and utilities is deductible.
Professional fees: Accounting, legal, and consulting services.
Marketing and advertising: Website, SEO, and local ads.
Continuing education: Conferences, courses, and certifications.
Insurance: Professional liability, general liability, and health insurance (if self-employed).

Keep meticulous records. Use accounting software like QuickBooks or Xero to track expenses. Save all receipts, and consider hiring a CPA who specializes in healthcare practices. A good CPA can save you thousands in taxes and help you avoid penalties.

State-Specific Considerations

State taxes vary widely. Here’s a quick comparison of state income tax rates for a single owner with $80,000 net income:

State	State Income Tax Rate (approx.)	Annual State Tax on $80,000
Texas	0%	$0
Florida	0%	$0
Colorado	4.4% flat	$3,520
Illinois	4.95% flat	$3,960
California	9.3% (marginal)	$7,440
New York	6.85% (marginal)	$5,480

Note: These are simplified examples. Your actual state tax may differ due to deductions and credits. Check your state’s department of revenue website for current rates.

If you live in a no-income-tax state, your set-aside can be closer to 25% to 30%. If you’re in a high-tax state, lean toward 40%.

How to Set Aside Money: A Step-by-Step Plan

Follow these steps this week to get your tax savings on track:

Open a separate tax savings account at your bank or an online bank like Ally or Marcus. Aim for an interest rate of 4% or higher.
Estimate your net income for the year. Use your current revenue and expenses to project forward.
Calculate your estimated tax rate using the formula above or a tax calculator.
Set up automatic transfers from your business checking to your tax savings account. Transfer 30% to 40% of each deposit or on a weekly basis.
Mark the quarterly due dates on your calendar. Set reminders two weeks before each deadline.
Work with a CPA to prepare your quarterly estimates and annual return. This is not a DIY project if you want to avoid mistakes.

FAQ

Q: What happens if I don’t set aside enough for taxes? A: You’ll owe the balance when you file, plus penalties and interest. The IRS charges a penalty for underpayment of estimated taxes, which is currently around 5% of the underpaid amount, plus interest. To avoid this, aim to pay at least 90% of your current year’s liability.

Q: Can I use a credit card to pay my quarterly taxes? A: Yes, but the IRS charges a processing fee of about 1.85% to 2% for credit card payments. Debit card payments have a flat fee of around $2.50. It’s better to pay from your bank account via EFTPS or IRS Direct Pay, which are free.

Q: Should I hire a CPA or use tax software? A: For a new practice, a CPA is worth the investment. They can help you choose the right business structure, maximize deductions, and avoid costly mistakes. Expect to pay $300 to $600 for a basic business return, or $1,000+ if you have payroll. Tax software like TurboTax Self-Employed costs $120 to $200, but it won’t give you personalized advice.

Q: Are there any tax credits for new ABA practices? A: Yes, you may qualify for the Qualified Business Income (QBI) deduction, which allows you to deduct up to 20% of your business income. Also, if you provide health insurance for yourself, you can deduct premiums. Some states offer credits for hiring employees or providing services to underserved areas. Check with your CPA.

The Bottom Line

As a new ABA practice owner, set aside 30% to 40% of your net income for taxes. This covers federal, state, and self-employment taxes. Open a separate savings account, transfer money consistently, and make quarterly estimated payments. Track every expense to lower your tax bill, and consult a CPA to ensure you’re on the right track. With a little planning, you can avoid tax surprises and keep your practice financially healthy.