Getting paid as a 1099 contractor can feel like a breath of fresh air. You invoice, you get paid, and nobody’s taking a chunk out for taxes before the money hits your account. But that same freedom can turn into a nasty surprise when tax time rolls around and you realize you were supposed to be setting money aside all along.
If you’ve ever wondered, “How much should I save so I don’t get crushed later?” you’re in the right place. This guide breaks down the moving parts—federal income tax, self-employment tax, state taxes, quarterly payments, and the real-life factors that make your number different from your friend’s. The goal is simple: help you pick a practical percentage to set aside and build a system you can stick with.
Because the target keyword here is accountant Burbank, I’ll also touch on what it looks like to get local support when you’re juggling irregular income, deductions, and estimated payments—especially if you’re working in or around Burbank and want advice that matches your situation.
Why 1099 taxes feel confusing (even when you’re good with money)
Most people grow up seeing taxes handled automatically through payroll. With W-2 jobs, your employer withholds federal tax, state tax (in most states), Social Security, Medicare, and often even local taxes. You might adjust a W-4 once in a while, but the system runs in the background.
As a 1099 contractor, you’re the employer and the employee at the same time. That means you’re responsible for paying the full share of certain taxes, tracking your business income and expenses, and sending payments to the IRS throughout the year. Even if you’re organized, it can feel like you’re trying to hit a moving target—especially when your income changes month to month.
On top of that, the “right” amount to set aside isn’t a single universal percentage. It depends on your profit (not revenue), your filing status, your total household income, what state you live in, and whether you qualify for deductions and credits. Two contractors can bring in the same revenue and owe wildly different tax bills.
The taxes 1099 contractors typically owe
Self-employment tax: the one that surprises people first
The biggest shock for many new contractors is self-employment tax. This covers Social Security and Medicare. When you’re a W-2 employee, you pay part of these taxes and your employer pays the other part. When you’re self-employed, you cover both sides.
In plain terms, self-employment tax is generally 15.3% of your net earnings from self-employment (profit). That includes 12.4% for Social Security (up to an annual wage base limit) and 2.9% for Medicare (with an additional Medicare tax possibly applying at higher income levels).
This is why setting aside “just income tax” isn’t enough. Even if your federal income tax bracket is relatively low, self-employment tax can still be a significant chunk of your profit.
Federal income tax: your bracket matters, but so does your profit
Federal income tax is calculated using tax brackets, but it’s not as simple as “I’m in the 22% bracket so I owe 22% of everything.” The U.S. has a progressive system: different portions of your taxable income are taxed at different rates.
Your taxable income is your total income minus deductions (like the standard deduction or itemized deductions) and other adjustments. For contractors, your taxable income starts with your business profit (income minus deductible expenses) and then gets combined with any other income you have (like a spouse’s W-2 income, investment income, etc.).
So the number you should set aside depends on the bigger picture, not just what you invoice.
State income tax (and why your location changes the math)
State taxes vary a lot. Some states have no income tax, while others have progressive brackets. If you’re in California, for example, state income tax can be a meaningful additional percentage depending on your income.
Even within the same state, your city can influence the practical side of compliance—what forms you receive, what local business licenses you need, and how you keep records. If you’re working around Burbank, it can be helpful to talk with someone who understands the local contracting landscape and what’s common for your type of work.
That’s where working with an experienced accountant Burbank can make things feel less like guesswork and more like a repeatable plan.
A realistic rule of thumb: picking a percentage to set aside
The quick baseline many contractors use
If you want a simple starting point, many 1099 contractors set aside 25% to 30% of their profit. This often covers federal income tax plus self-employment tax for people in moderate income ranges, especially if they have decent deductions.
But here’s the catch: that percentage should be based on profit, not your total deposits. If you bring in $8,000 in a month but spend $2,000 on legitimate business expenses, your “taxable engine” is closer to $6,000 (before other deductions). Setting aside 30% of $8,000 versus 30% of $6,000 is a big difference.
If you don’t know your profit yet because you’re not tracking expenses consistently, start with revenue as a temporary measure—just to avoid under-saving—then refine your percentage once your books are cleaner.
When 30% isn’t enough (and when it’s too much)
30% can be too low if you’re in a higher tax bracket, live in a higher-tax state, or have fewer deductions than you expected. It can also be too low if you’re having a strong year and your income is climbing quickly, pushing more of your income into higher brackets.
On the other hand, 30% can be more than you need if your income is modest, you have significant deductible expenses, or you qualify for valuable credits. Over-saving isn’t the worst problem (it’s basically forced savings), but it can make cash flow tighter than it needs to be—especially if you’re trying to reinvest in your business.
A better approach is to start with a conservative percentage, then adjust quarterly using real numbers.
Start with profit, not panic: how to estimate your taxable income
Revenue vs. profit: the single most important distinction
Revenue is what clients pay you. Profit is what’s left after ordinary and necessary business expenses. Taxes are primarily based on profit, so if you’re setting aside a percentage of revenue without understanding your expenses, you’re flying half-blind.
For example, a freelance designer might have low overhead (software subscriptions, a laptop, maybe a coworking space), while a contractor who drives to job sites might have higher vehicle-related costs. Two people can earn the same revenue and have very different profits—and therefore different tax obligations.
That’s why clean records matter. Even if you’re not a “numbers person,” having a simple system for tracking income and expenses is one of the best ways to avoid overpaying or underpaying.
Common contractor expenses that can reduce taxable profit
Many 1099 contractors miss deductions simply because they don’t track them. Some common categories include software, supplies, professional fees, advertising, education, phone and internet (business portion), mileage or vehicle expenses, home office (if you qualify), and equipment.
It’s important to keep documentation and to understand what’s actually deductible. “I bought a laptop” is not always an immediate full deduction, and “I work from my kitchen table” doesn’t automatically qualify for a home office deduction. The rules matter, and the details can change your tax bill.
If you want to make this easier on yourself, getting your bookkeeping set up properly can be a game changer—because once your numbers are reliable, your tax set-aside percentage stops being a wild guess.
Quarterly estimated taxes: what they are and how to avoid penalties
Why the IRS wants payments throughout the year
The U.S. tax system is “pay as you go.” Employees do that through payroll withholding. Contractors do it through estimated tax payments. If you wait until April and pay everything at once, you might owe an underpayment penalty even if you can afford the bill.
Estimated payments generally cover both your federal income tax and self-employment tax. Depending on your state, you may also need to make state estimated payments.
The good news is that once you build a routine, quarterly payments are manageable. The key is to treat them like a normal operating expense rather than a surprise.
Typical quarterly due dates and a practical workflow
Quarterly estimated taxes are usually due in April, June, September, and January (for the prior year’s Q4). The dates can shift slightly if they fall on weekends or holidays, so it’s worth putting reminders on your calendar.
A simple workflow many contractors use looks like this: every time you get paid, immediately transfer your tax set-aside into a separate savings account. Then, when quarterly deadlines arrive, you pay the IRS from that account. This keeps you from accidentally spending money that isn’t really yours.
If your income is uneven, you can also calculate estimated payments using the annualized income method, which can reduce penalties when your earnings are seasonal. That’s more advanced, but it’s helpful for people whose income spikes in certain months.
Choosing your set-aside percentage based on your situation
If you’re brand new to 1099 work
If this is your first year as a contractor, you may not have a clear sense of your profit margin or your effective tax rate. In that case, start conservatively. Many people choose 30% of profit as a starter rate, then adjust after the first quarter once they see real numbers.
Also, remember that your first year can come with “setup costs” (equipment, software, branding). Those may lower profit early on, which can lower taxes—but don’t assume that will be true every year.
It’s better to build the habit of saving consistently than to try to perfectly optimize from day one.
If you’re making solid income and your tax bracket is climbing
As your profit increases, more of your income may be taxed at higher marginal rates. That’s when the “25% is fine” approach can start to fall short—especially if you’re also paying state income tax.
In higher-income scenarios, contractors often set aside 35% to 40% of profit to stay safe. This is especially common for people who don’t have many deductions, or who have additional household income pushing them into higher brackets.
If you’re seeing rapid growth, consider recalculating your estimated taxes mid-year instead of waiting until Q4. It’s much easier to adjust gradually than to scramble later.
If you have a lot of deductible expenses
Some businesses have higher overhead—think photographers with gear, tradespeople with tools, or consultants who travel frequently. If your expenses are legitimate, well-documented, and ordinary for your line of work, your taxable profit may be lower than you expect.
In those cases, setting aside a smaller percentage might be fine, but only if you’re tracking expenses consistently. Otherwise, you’ll feel like you “should” owe less, but you won’t have the records to support it.
A good pattern is to keep your default set-aside rate steady (say 30%), then use quarterly check-ins to correct course once you see your actual profit margin.
Don’t forget the QBI deduction (it can change your effective tax rate)
What the deduction is in everyday language
Many self-employed people can qualify for the Qualified Business Income (QBI) deduction, which can allow you to deduct up to 20% of qualified business income. It doesn’t reduce self-employment tax, but it can reduce federal income tax by lowering taxable income.
Whether you qualify depends on your total taxable income, the type of work you do, and other factors. Certain “specified service trades or businesses” can face limitations at higher income levels.
This is one reason two contractors with the same profit can owe different amounts. If one qualifies for QBI and the other doesn’t (or is phased out), their effective tax rates will differ.
How to account for it when setting money aside
If you know you qualify for QBI and you’re not near phase-out thresholds, your federal income tax portion might be lower than expected. But it’s usually wise not to “spend” that benefit in advance unless you’re confident in your numbers.
A practical method: keep your set-aside percentage slightly conservative early in the year. Then, after you’ve got a few months of clean bookkeeping and a clearer picture of your taxable income, you can adjust your quarterly payments.
Think of QBI as a potential bonus—great to have, but not something you want to rely on blindly.
How to build a simple system so taxes don’t hijack your cash flow
Use separate accounts and automate transfers
The easiest way to stay out of trouble is to stop mixing tax money with spending money. Open a separate savings account just for taxes. Every time you get paid, transfer your set-aside amount immediately.
Automation helps because it removes decision fatigue. If you have to “choose” to set money aside every time, life will eventually get busy and you’ll skip it. If the transfer happens automatically, you’ll adapt your spending to what’s left.
Some contractors also keep a separate account for business expenses. That can make it easier to see what’s truly available to pay yourself.
Pay yourself a consistent “salary” (even if you’re not on payroll)
Irregular income can lead to irregular spending. One month feels rich, the next month feels tight. A helpful strategy is to pay yourself a consistent amount weekly or biweekly, similar to a paycheck.
When you do this, you’re less likely to spend windfalls that should be reserved for taxes or upcoming expenses. It also makes personal budgeting way easier.
If your income is highly variable, you can set your “salary” slightly below your average and keep a buffer in the business account.
Special situations that change how much you should set aside
If you also have a W-2 job (or your spouse does)
If you have a W-2 job alongside your 1099 income, you might already have federal income tax withholding happening through payroll. That can reduce how much you need to pay via estimated taxes—if the withholding is high enough.
But self-employment tax on your 1099 profit still applies. So even if your W-2 withholding covers your income tax, you may still owe a meaningful amount for Social Security and Medicare.
In some cases, adjusting your W-2 withholding upward can be a simpler alternative to quarterly payments. It’s worth running the numbers to see what’s easiest.
If you’re not setting aside anything yet and you’re behind
If you’ve been spending everything you earn and you’re worried you’re already behind, don’t freeze. Start by estimating your year-to-date profit and applying a conservative percentage (like 30% to 35%). Then compare that to what you’ve already saved.
If there’s a gap, you can catch up gradually by increasing your set-aside rate for the next few months. For example, if you should have been saving 30% but saved 0%, you might temporarily set aside 45% until you’re back on track.
The earlier you address it, the more options you have. Waiting until March or April usually makes it more painful.
If you’re an LLC, S corp, or thinking about changing structure
Your business structure can influence your taxes, but it’s not a magic wand. A single-member LLC is typically taxed like a sole proprietorship by default, meaning self-employment tax generally applies to profit.
An S corporation can reduce self-employment tax in some cases by splitting income into salary and distributions, but it also adds complexity: payroll, compliance, and stricter rules. It can be beneficial at certain profit levels, but it’s not automatically the best move for everyone.
If you’re considering a change, it’s wise to run projections rather than relying on internet rules of thumb.
Practical examples: what setting aside taxes can look like in real life
Example 1: A freelancer with moderate expenses
Let’s say you bring in $90,000 in revenue and have $15,000 in deductible business expenses. Your profit is $75,000. If you set aside 30% of profit, that’s $22,500 for the year, or about $1,875 per month.
Depending on your filing status, deductions, and state taxes, you might owe more or less than that. But for many people, 30% of profit lands in the “pretty safe” zone—especially if you adjust quarterly.
If you’re in a higher-tax state, you might bump it to 33% to create a buffer.
Example 2: A contractor with higher income and fewer deductions
Now imagine you earn $160,000 in profit with relatively low expenses. Your self-employment tax alone could be substantial, and your federal income tax bracket will likely be higher as well. In this scenario, setting aside 35% to 40% of profit may be more realistic.
This is also where planning becomes more valuable: retirement contributions, health insurance deductions (if eligible), and timing of expenses can all meaningfully change the outcome.
At this level, it’s worth doing proactive tax projections rather than waiting for a year-end surprise.
Example 3: Side hustle income that’s growing fast
If you’re earning 1099 income on the side—say $1,000 to $3,000 per month—your best move is often to set aside a clear percentage from the start. Even 25% of profit can be enough for some side hustles, but it depends on your household income and bracket.
Side hustle taxes can sting because your main job may already push you into a higher marginal bracket. That means your extra 1099 profit can get taxed at a higher rate than you expect.
If you’re unsure, 30% is a safe starting point until you run the numbers.
Working with a pro: what to ask so you get real value
Tax planning is different from filing (and you want both)
Many people think “tax help” means filing a return in March. But the real savings and stress reduction often come from planning during the year—choosing a set-aside rate, estimating quarterly payments, and making decisions while you can still influence the numbers.
When you talk to a tax pro, ask how they handle projections and estimated payments for contractors. Ask what information they need from you monthly or quarterly, and what tools they recommend for tracking income and expenses.
If you’re in the Burbank area and want help that covers both the strategy and the paperwork, look for tax preparation services in Burbank that also emphasize year-round support.
Questions that help you leave the meeting with a clear set-aside number
To make the conversation practical, ask for a recommended set-aside percentage based on your projected profit, plus a schedule for quarterly payments. If they can provide a range (like 30%–35%) and explain what would cause it to change, you’ll feel much more confident.
Also ask about the top deductions you might be missing, and what documentation you should keep. A lot of tax stress comes from uncertainty—people aren’t sure what’s allowed, so they either claim too little or take risky guesses.
Finally, ask whether adjusting W-2 withholding (if applicable) could simplify your life. Sometimes the easiest system is the one you’ll actually follow.
A simple checklist you can use every month
Monthly habits that keep you ahead of tax season
Once a month, review your income, expenses, and profit. You don’t need a complicated spreadsheet—just a consistent method. If you’re using accounting software, run a profit and loss report and look at the trend.
Then check your tax savings account balance. Does it roughly match your set-aside percentage year-to-date? If not, adjust now while it’s still easy.
Also, keep an eye on big changes: a new client, a rate increase, a drop in expenses, or a shift in how much you’re working. Those can all change your tax estimate quickly.
Quarterly habits that prevent penalties and surprises
Each quarter, estimate your year-to-date profit and project your full-year profit. Use that to calculate estimated taxes and pay them on time. If your income is rising, don’t rely on last year’s numbers.
Save copies of your payments and note them somewhere accessible. At tax time, you’ll need to reconcile what you paid with what you owe.
If you’re unsure whether your payments are on track, a quick mid-year check-in with a tax pro can be much cheaper (and less stressful) than dealing with penalties later.
Picking your number and moving forward with confidence
If you want a clean, actionable takeaway: start by setting aside 30% of your profit if you’re not sure, then refine it after your first quarter based on real profit and your projected annual income. If you’re in a higher bracket or a higher-tax state, consider 35% to 40% until you’re confident you’re saving enough.
Most importantly, build a system that makes saving automatic and predictable. Taxes are a lot less scary when you treat them like a routine transfer instead of a once-a-year emergency.
And if you’re working as a contractor around Burbank and want help dialing in a set-aside percentage that actually matches your income, expenses, and goals, getting local guidance can turn all of this from “I hope I’m doing it right” into “I know I’m covered.”