Taxes: How, When and How Much to Pay
The biggest surprise new consultants encounter? Paying tax 4 times a year
When you run your own business—even as a one-person operation—paying taxes is a completely different ballgame than when you’re a full-time employee. As with many aspects of starting and growing a consulting firm, your primary goal is to stay compliant, which includes making sure the government gets its share. Drawing from my own experience, here’s a straightforward guide to navigating business taxes with confidence.
Choose Your Business Structure Wisely
Your business structure sets the foundation for how you handle taxes, so it’s important to choose carefully. Most small consulting firms operate as a sole proprietorship, single-member LLC, or S-corp, each with its own tax implications and responsibilities.
When I launched my firm, I chose an LLC. It offered a clear separation between my personal and business finances, gave me flexibility in how I’m taxed, and was straightforward to set up. With an LLC, profits pass through to your personal income tax return, and you file using IRS Schedule C. Down the road, you might consider keeping your LLC structure but electing to be taxed as an S-corp, which can reduce your overall tax burden. This approach allows you to pay yourself a reasonable salary while saving on self-employment taxes—more on that in a future post.
Set Aside Up to 30% of Revenue for Taxes
When you’re an employee, your employer covers taxes you probably never think about—like half of your FICA taxes for Medicare and Social Security. But as the owner of a consulting business, you wear both hats: employer and employee. That means you’re responsible for paying both halves, which in 2025 totals 15.3%.
When I first started, I had the illusion of earning more money than I could actually keep. I’d pull the physical checks out of the mailbox, see the full amount, and feel a rush of excitement before scanning them with my phone and depositing them into my bank account. But I knew the full amount wasn’t mine to keep.
To stay on the safe side, I’d set aside 30% of every payment for taxes. For example, if I received a $10,000 check, I’d immediately earmark $3,000 for taxes. While deductions for business expenses and retirement contributions often meant I kept more than 70% of my income, I preferred to overestimate rather than risk penalties for underpayment. And I didn’t mind receiving a small refund in the spring.
Make Quarterly Estimated Payments
One of the biggest surprises for new consultants is that tax season isn’t once a year—it’s four times a year. As self-employed professionals, we pay estimated taxes quarterly, with payments due on April 15, June 15, September 15, and January 15. I send payments to both the IRS and the State of Maryland ahead of these deadlines. While the IRS website is user-friendly, Maryland’s system is frustrating enough that I resort to mailing physical checks to Annapolis each quarter.
Each payment typically covers the preceding three months, except for the June 15 payment, which covers just April and May. The amount you owe is based on your prior year’s profit, which makes the first year especially tricky since you’re guessing how much profit you’ll make. Overpaying can give you some breathing room and avoid penalties, and when you file your annual taxes, you’ll get credit for every quarterly payment you’ve made.
To stay on top of deadlines, I set a recurring calendar reminder for each quarter. It’s a simple step that ensures I never miss a payment and keeps my business running smoothly.
Work With a Professional Accountant
I’m lucky to have an uncle who’s also a professional accountant—someone I trust and can ask all the stupid questions. (He would agree I’ve asked more than my fair share.) If you’re diligent about tracking your finances through QuickBooks or a similar service, filing taxes should be relatively straightforward. That said, working with a professional accountant is worth every penny. They’ll ensure you’re keeping as much of your hard-earned money as possible while spotting deductions and tax credits you might otherwise miss.
For instance, when I worked exclusively from home, my accountant maximized deductions for my home office, along with a percentage of my internet, heating/AC, and phone bills. These are the kinds of details that can make a meaningful difference in your final tax bill.
While online tax filing services like TurboTax are a fine option for straightforward filings—especially when your business is still relatively simple—I sleep better knowing a trained professional is preparing my returns. This brings me to a recurring theme: it’s almost always worth hiring experts for tasks you don’t enjoy or lack the expertise to handle. Your time is far too valuable to get bogged down in tax prep when you could be focusing on growing your business.
Maximize Deductions Available to You
As a business owner, you learn to think differently about expenses. Not every dollar spent is a loss—far from it. Every legitimate business-related expense lowers your taxable income, which directly reduces your tax burden. Common deductible expenses include office supplies, software subscriptions (like QuickBooks and Zoom), professional development courses, website and logo design, and travel. While these costs might seem minor at first, they can add up significantly over time.
To make the most of these deductions, it’s essential to stay organized. Keep all receipts and categorize your expenses regularly. QuickBooks simplifies this process, but consistency is key. Don’t wait until the end of the year to reconcile everything. I dedicate 15 minutes every Friday to review and categorize transactions, and that small weekly investment saves me headaches come annual tax filing time.
Beyond regular deductions, the Qualified Business Income (QBI) Deduction can have a significant impact. If you’re eligible, you can deduct up to 20% of your qualified business income on your federal tax return. However, the deduction phases out at higher income levels. For 2025, single filers see the phase-out begin at $182,100 and end at $232,100, while married filers (filing jointly) start phasing out at $364,200 and end at $464,200.
Retirement contributions also offer an incredible opportunity to reduce your taxable income while building a financial safety net for the future. As a business owner, you contribute as both the employee and the employer, which means you have access to higher contribution limits. I was thrilled when I discovered the Solo 401(k) (also called a One-Participant 401(k)), designed specifically for single-person businesses. The contribution limit is remarkable: up to $69,000 annually in combined employee and employer contributions. Compare that to the standard $23,000 cap on traditional 401(k) plans, and the difference is extraordinary. Not only does this allow you to save significantly for retirement, but you also deduct the entire amount from your taxable income.
Keep in mind that the Solo 401(k) is only available as long as you’re the sole participant in your plan. Once you hire employees, you’ll need to transition to a traditional retirement plan. Still, for a single-person consulting business, it’s one of the most powerful tools to save for the future while lowering your tax liability.
Understanding how tax payments work for a new consulting business is one of the many responsibilities you'll take on in addition to delivering for your clients and finding new business. But knowing how much you owe and avoiding penalties for late or underpayments will allow you to run your business more effectively and make smarter decisions as you begin to grow. Over time, these habits will become second nature. Staying ahead of your taxes frees you to focus on what really matters—serving your clients and building the business.