From revenue to what you keep
Revenue minus deductible expenses gives net profit — the figure self-employment tax and income tax are calculated on. Then subtract SE tax to see what is actually available before income tax and living costs.
Expenses that reduce the bill
- Home office (simplified method or actual costs)
- Mileage at 70¢/mile for 2025, or actual vehicle costs
- Software, equipment, professional development
- Health insurance premiums and half of SE tax
- Retirement contributions (SEP-IRA up to 25% of net)
The margin question
A 75% net margin looks excellent until you remember it has to fund your time, your equipment replacement and your slow months. Service businesses commonly net 50–70%; product businesses 10–25%.
Paying yourself
Separate the business account from personal spending and pay yourself a fixed monthly amount based on the lower of your average net income and your budget. Adjust quarterly rather than spending whatever is in the account.
Frequently Asked Questions
What counts as a business expense?
Anything ordinary and necessary for the business — the IRS test is ordinary and necessary, not convenient.
How much tax should I set aside?
25–30% of net profit is a safe default until you know your effective rate.
Should I pay myself a salary?
As a sole proprietor you take draws; an S-corp requires a reasonable salary.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
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