The general rule is to set aside 25% to 30% of your net income for taxes. For self-employed people in California, that number can run closer to 30% to 35% depending on how much you earn.

Here’s why the number is that high. As a self-employed person you’re responsible for self-employment tax, which covers both the employer and employee portions of Social Security and Medicare. That alone is 15.3% on your first $168,600 of net earnings. On top of that you owe federal income tax based on your bracket, which for most trades business owners earning decent money falls somewhere between 12% and 24%. Then California adds state income tax ranging from 1% to 13.3% depending on your taxable income. Stack all three together and the total adds up fast.

The number that actually matters is your effective rate after deductions. A contractor who drives 25,000 business miles a year, buys tools and equipment, pays for insurance, and has legitimate home office expenses will have a much lower effective rate than someone with the same gross revenue but fewer write-offs. This is why bookkeeping for trades businesses makes such a difference. You can’t figure out the right savings percentage if you don’t know your real net income throughout the year.

Quarterly estimated payments are required if you expect to owe $1,000 or more in federal taxes or $500 in California taxes. The IRS and the Franchise Tax Board both charge penalties for underpayment, so saving consistently and paying on time every quarter keeps you out of trouble. The deadlines are April 15, June 15, September 15, and January 15.

Entity structure also changes the math significantly. Sole proprietors pay self-employment tax on all net earnings. An S-corp election lets you pay yourself a reasonable salary and take the remaining profit as distributions, which avoids self-employment tax on that portion. For many trades business owners earning over $80,000 to $100,000 in net profit, this saves thousands every year. A tax strategy conversation can help you figure out whether that switch makes sense for your situation.

The practical move is to open a separate savings account and transfer 30% of every payment you receive into it. If your actual tax bill comes in lower after deductions, you have money left over. That beats the alternative of only saving 20% and finding out you owe 30% when it’s time to file.