Foundation 9 of 20 · Report
How Much Should I Set Aside for Taxes? Small Business Tax Planning
Your Best Year Should Not Arrive as a Bill.
"Why do taxes always surprise me?" If taxes surprise you every year, the problem is not the tax. It is where the money went before the bill came. Here is how to plan for taxes all year, with a separate reserve and quarterly payments.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
How Much Should I Set Aside for Taxes?
Textbook Definition
Tax planning is the analysis and arrangement of a taxpayer's financial affairs to anticipate tax liabilities, meet payment obligations such as estimated taxes on time, and stay compliant with applicable tax law.
In Plain English
Set aside a fixed share of what comes in, every week, in a separate account, before you spend anything else. The right share depends on your business type, your income, and where you live, so get the number from a tax professional. Then pay toward the bill during the year instead of all at once.
Why It Matters
Why Do Taxes Surprise Owners Every Single Year?
Taxes are the most predictable bill a business has. Everyone knows roughly when they are due. And they surprise more owners than any other cost, because the money for them was never moved out of reach. It sat in the main account, looked like profit, and got spent on the growth that made the year good.
A good year makes it worse. More income means more tax owed, and all of it already went into new equipment, new hires, or a fresh coat of paint. The fix is a habit, not a trick: treat the tax as a known, scheduled cost and pay it in parts.
Signs you have this problem:
- A tax bill has ever forced you into a payment plan.
- You do not set aside anything for taxes until the bill arrives.
- Your best year left you with your biggest money problem.
- You have never made an estimated tax payment.
- You do not know your estimated tax due dates.
- You check the main account balance and think all of it is yours.
What It Looks Like
What It Looks Like When the Best Year Becomes the Worst Letter
From the Fabled Forest · Chapter 9
Commander Colt runs Forest Trails and Tours, and he just had his best year ever. Bookings up by half. Then a letter arrived from the Forest Revenue Office: he owed 120 coins in three weeks. His business account held fifteen.
Agnes the Armadillo, behind the Revenue Office counter, was not surprised. He had paid the bill every year. It surprised him every year. That was not the same as not knowing. He had spent the year on a new wagon, two guides, and fresh paint.
Doctor Owl set up two moves: a separate tax reserve account, with a set share of every week's bookings moved into it first, and four payments a year on dates pinned above Colt's desk. His assistant Greta handles the transfers. By midwinter the reserve held ninety coins, labeled COMMITTED, and Colt closed the catalog for a second wagon.
Colt's story is Chapter 9 of Accounting and Finance for Small Businesses, Book 2 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Plan for Taxes in 5 Steps
This teaches the habit, not the law. Tax rules differ by business type, location, and year, so a tax professional sets your numbers.
Open a separate account for taxes only.
In the business name, used for one purpose. Nothing comes out of it except tax payments.
Get your set-aside share from a tax professional.
Ask what share of income or profit to set aside, based on your business type and where you operate. This page will not guess, because the right answer changes by person, place, and year.
Move that share every week, before anything else.
Every time money comes in, the tax share moves first. Have someone else make the transfer if you can, but keep the balance where you can see it, marked as committed. That is your tax reserve.
Put the estimated tax dates on the wall.
Many owners must pay toward their taxes during the year. For individuals, including sole proprietors, partners, and S corporation shareholders, the IRS generally requires estimated payments if you expect to owe $1,000 or more. Ask your tax professional whether that applies to you.
Pay each quarter from the reserve.
Four smaller payments instead of one large surprise. When the year-end return comes, it is a settling-up, not a shock.
Dr. Paul's Insight
The first year of this habit pinches. You may be paying last year's bill while setting aside for this year's at the same time. Plan for that one hard year instead of quitting halfway through it. And do not hide the reserve from yourself. Keep the balance visible and labeled. Hiding money is not planning. Seeing it and choosing not to spend it is.
Sample: A Tax Set-Aside Plan
Fill in the share from your tax professional. Pin it where you will see it every week.
| Tax reserve account | Separate account, business name. Nothing out but tax. |
| Set-aside share | The percentage your tax professional gives you, moved every Friday before any other spending. |
| Federal estimated tax dates (2026) | April 15, June 15, and September 15, 2026, and January 15, 2027, per the IRS. State dates may differ. |
| Who moves the money | Office manager, every Friday, with the bank deposit. |
| Year-end | The return settles up what the quarterly payments did not cover. |
Sample for illustration. Confirm whether estimated payments apply to you, and your state's rules, with a tax professional.
Watch
Video: How to Stop Being Surprised by Taxes
How Much Should I Set Aside for Taxes? Small Business Tax Planning
Dr. Paul sets up a tax reserve and a quarterly payment calendar on screen.
From the Book
Not the Same as Not Knowing
Chapter 9 · Tax Planning
Surprise, You Owe: A Horse's Autumn
"I didn't know it was coming."
"You did," said Agnes. "You have paid it every year. It surprises you every year. That is not the same as not knowing."
"Then I'll earn it. Extra tours. Weekends. Just a bit more horsepower."
"That," said Agnes, "is how you arrived at this counter."
How did Colt pay a bill he could not afford, and make sure next year's never surprised him? Find out in Chapter 9. Book 2 of Dr. Paul's Fabled Forest Business School Series.
Get the Book on Amazon →FAQ
Tax Planning Questions
What percentage of income should I set aside for taxes?
What are estimated taxes?
When are quarterly estimated taxes due?
What is a tax reserve account?
Keep Going
Related Foundations
Tax planning connects to four foundations: what you owe, what you can deduct, and when the cash moves. New to a term on this page? Every one is in the accounting and finance glossary.
Foundation 10 · Recordkeeping and Business Deductions
Documented deductions lower what you owe in the first place.
Foundation 13 · Cash Reserve
A cash reserve covers the bad months. The tax reserve covers the tax.
Foundation 4 · Income Statement
Tax is usually figured on what the business keeps, the bottom line of your income statement.
Foundation 11 · Cash Flow
Put the quarterly tax dates into your 13-week cash flow forecast.
Go Deeper
Beginner’s Guide to Small Business Finance
Taxes come out of what you pay yourself too. See how much to pay yourself, then the small business finance guide for the rest of the owner’s money picture.
Read the free small business finance guide →Written by Dr. Paul Borosky, DBA, MBA, business consultant and author with an MBA focused in finance. Tax rules vary, so talk with a qualified tax professional about your own situation. Want help building a tax reserve into your cash plan? See fractional CFO services.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.