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How Much Should a New Accounting Firm Set Aside for Taxes?

2026-08-21

How Much Should a New Accounting Firm Set Aside for Taxes?
Photo: Mikhail Nilov / Pexels

Learn how much a new accounting firm should set aside for taxes, including federal, state, and self-employment rates, with practical steps and examples.

Starting an accounting firm means you’re now responsible for your own taxes. Unlike a salaried job, no one withholds from your checks, so you need to set aside money proactively. A good rule of thumb: set aside 30% to 40% of your net income for federal and state taxes, plus self-employment tax. This guide breaks down the exact amounts, how to calculate them, and steps you can take this week.

Why 30% to 40% Is a Safe Range

Your effective tax rate depends on your business structure and income level. For a new firm, you’ll likely pay:

  • Self-employment tax: 15.3% (12.4% for Social Security, 2.9% for Medicare) on net earnings up to $168,600 (2026 limit). This is in addition to income tax.
  • Federal income tax: Marginal rates start at 10% and go up to 37%. For a single filer with $100,000 net income, the effective federal rate is roughly 18% to 20%.
  • State income tax: Varies from 0% (Texas, Florida) to 13.3% (California). Average is 5% to 7%.
  • Self-employment tax deduction: You can deduct half of your self-employment tax, which lowers your taxable income.

Combined, a new owner with $80,000 to $120,000 net income will pay about 25% to 35% in total taxes. The 30% to 40% range covers most situations, including state taxes and potential underpayment penalties.

How to Calculate Your Exact Number

Use this simple formula:

  1. Estimate net income: Total revenue minus business expenses (software, rent, marketing, etc.).
  2. Calculate self-employment tax: Net income × 92.35% × 15.3%.
  3. Estimate federal income tax: Use the 2026 tax brackets (single: 10% up to $11,600, 12% up to $47,150, 22% up to $100,525, etc.).
  4. Add state tax: Check your state’s rate, typically 4% to 9% of net income.
  5. Divide by 12 to get a monthly set-aside.

Example: New firm nets $100,000.

  • Self-employment tax: $100,000 × 0.9235 × 0.153 = $14,129
  • Federal income tax (single, after standard deduction of $14,600): taxable income ~$85,400, tax ~$14,800
  • State tax (5% average): $5,000
  • Total: ~$33,929, or 34% of net income.

Set aside $2,827 per month.

Quarterly Estimated Tax Payments

The IRS requires quarterly payments if you expect to owe more than $1,000. Due dates: April 15, June 15, September 15, and January 15. Pay via IRS Direct Pay or EFTPS. Underpayment penalties are about 7% annualized, so don’t skip.

How to pay: Calculate your estimated tax using Form 1040-ES. For the first year, base it on your projected income. Adjust after each quarter based on actuals.

Create a Separate Tax Savings Account

Open a dedicated business savings account for taxes. Transfer a percentage of every client payment immediately. For example, if you bill $5,000, move $1,500 (30%) to the tax account. Use automatic transfers to make it routine.

Recommended accounts: High-yield savings (e.g., Marcus, Ally) offering 4% to 5% APY. Keep funds liquid, not in investments.

Track Expenses to Lower Your Tax Bill

Every deductible expense reduces your net income and thus your tax set-aside. Common deductions for accounting firms:

  • Software subscriptions (QuickBooks, tax prep tools): $50-$200/month
  • Home office deduction: $5 per square foot, up to 300 sq ft
  • Professional liability insurance: $100-$300/month
  • Continuing education: $500-$2,000/year
  • Marketing and website: $100-$500/month

Keep receipts and use accounting software to categorize. Lower net income means lower taxes, but don’t underpay to the point of penalties.

What to Do If You Didn’t Set Aside Enough

If you’re short at tax time, you have options:

  • IRS payment plan: Short-term (120 days) or installment agreement. Fees range from $31 to $225.
  • File for an extension: Gives you until October 15, but you still owe interest on unpaid taxes.
  • Adjust withholding: If you have a spouse with a W-2 job, increase their withholding to cover the gap.

Avoid paying with credit cards; interest rates are higher than IRS penalties.

FAQ

Q: Do I need to pay taxes if my firm loses money in the first year? A: No, but you still need to file a return. Losses can offset future income, so report them.

Q: Can I pay myself a salary instead of taking distributions? A: If you’re an S-corp, you must pay yourself a reasonable salary and pay payroll taxes. That changes your set-aside rate, often lower overall. Consult a CPA.

Q: What if I live in a state with no income tax? A: Then your set-aside can be 25% to 30% instead of 30% to 40%. Still include self-employment tax.

Q: How often should I review my set-aside percentage? A: Quarterly, after each estimated tax payment. Adjust based on actual income.

The Bottom Line

A new accounting firm should set aside 30% to 40% of net income for taxes. Open a separate savings account, transfer after each payment, and pay quarterly estimates. Review your numbers quarterly and adjust as income grows. If you’re unsure, work with a tax professional to set up a system. The key is consistency: set aside early, pay on time, and avoid surprises.