When I started freelancing I saved nothing, spent the gross, and met my first quarterly estimate like a car crash, scrambling, short, and paying a penalty for the privilege. A bookkeeper friend gave me the rule I still use: the sales tax you collect was never yours, and roughly a quarter to a third of what’s left is spoken for. Two piles, two rules, no exceptions.
Pile one: sales tax collected. It sits in your account briefly and belongs to the state. I sweep it into a separate savings bucket the day the invoice is paid, some banks let you auto-split deposits, which makes this painless. Spend it and you’re taking an interest-free loan from the government at penalty rates.
Pile two: income set-aside on net profit, not gross. My working number is 25–30{e0bed9560a59d6d3feee569f5ae3dad3ee14a646b3fccc2d16becbf099999e03} of net (invoiced minus expenses minus fees), which covers the 15.3{e0bed9560a59d6d3feee569f5ae3dad3ee14a646b3fccc2d16becbf099999e03} self-employment tax plus federal income across typical brackets. Higher earners in high-tax states should lean toward 30–35{e0bed9560a59d6d3feee569f5ae3dad3ee14a646b3fccc2d16becbf099999e03} or run the exact bracket math; lower earners can shade toward 25{e0bed9560a59d6d3feee569f5ae3dad3ee14a646b3fccc2d16becbf099999e03}. The key insight: a $10,000 invoice with $4,000 in costs needs savings on $6,000, not $10,000. Saving on gross over-saves and starves your cash flow for no reason.
Revisit the percentage twice a year or whenever income jumps, set-and-forget percentages drift as you cross brackets. And keep both piles in a different account from operating cash; out of sight beats willpower.
Takeaway: isolate collected sales tax immediately; auto-save 25–30{e0bed9560a59d6d3feee569f5ae3dad3ee14a646b3fccc2d16becbf099999e03} of net profit for income tax.
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Open the Invoice Tax Breakdown Calculator in your browser (Split any invoice into subtotal, tax, and total, per line item). Type or paste your input, adjust the options, and copy the result. Everything runs locally on your device with no account and nothing stored, so the three steps below take seconds even for confidential work.
- Enter your numbers into the fields. The result recalculates as you type.
- Switch any unit or option to see the updated answer instantly.
- Copy the result with the copy button, or read the summary beneath it.
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