How much should a freelancer set aside for taxes? A simple monthly method

Freelancers rarely run out of work. They run out of money in the month the tax bill arrives. The fix is not complicated: set aside a fixed share of every payment the day it lands, and check once a month that the share is still right.

This guide shows a method that works in any country. It does not replace advice from a local accountant, but it will get you most of the way there.

Step 1: Find your effective tax rate

Your effective rate is the share of your profit that actually goes to tax and social contributions, not the top rate in the law.

• If you filed last year, divide the total tax you paid by your profit for that year.
• If this is your first year, ask a local accountant or use your tax office's calculator once, with an honest estimate of your annual profit.

Write the number down. For most freelancers it falls somewhere between 10% and 30%.

Step 2: Add a safety margin

Income changes, rates change and estimates are wrong. Add 3 to 5 percentage points to your effective rate. If your rate is 18%, set aside 22%.

The extra money is not lost. If it is left over at the end of the year, it becomes your buffer for a slow month.

Step 3: Set aside on profit, not on income

Tax is usually charged on profit: income minus the business expenses you are allowed to deduct. So the amount to set aside each month is:

(Income this month − deductible expenses this month) × your rate

If you earned 3,000 this month, spent 400 on deductible tools and software, and your rate is 22%, you set aside (3,000 − 400) × 0.22 = 572.

Step 4: Move the money the same day

The method only works if the money leaves your everyday account.

1. Open a separate savings account and call it "Tax".
2. Every time a client pays, move your percentage there the same day.
3. Do not touch it for anything else.

When the tax bill comes, the money is already waiting.

A once-a-month check

At the end of each month, take ten minutes:

• Compare what is in the tax account with what the formula says should be there.
• Look at unpaid invoices. Money you have not received yet does not need a set-aside yet, but you should chase it.
• If your income grew a lot, check whether you moved into a higher tax band.

Keep it in one sheet

All of this is easier when income, expenses and the set-aside live in one place. A simple spreadsheet with an income log, an expense log and a monthly summary is enough. Enter your rate once and let the sheet calculate the amount every month.