Tax reserves for the self-employed in Germany: how much money should you set aside for taxes?

Why do the self-employed need tax reserves?

As an employee you receive your salary net – payroll tax and social security are already deducted. As a self-employed person the full invoice amount lands in your account, but the taxes on it only become due months or even more than a year later. The money in the account feels like income, but only part of it is.

The first and second years are particularly dangerous: the first income tax assessment often only arrives 15 to 20 months after founding and brings a back payment for the entire previous year plus prepayments for the current year. If you haven’t set anything aside by then, you often have to raise €10,000 or more within a short time. How exactly this works is shown in the guide tax prepayments.

A typical timeline when founding in January 2026: you pay VAT from the start via the advance returns, monthly or quarterly depending on the amount. You file the 2026 return by 2 August 2027 at the latest; the assessment may arrive in autumn 2027 – with income tax for the whole of 2026 and prepayments for 2027. At the same time, the health insurance fund finalises your contributions for 2026. If you set aside a fixed percentage from the first invoice, you will have the money for all three claims in your account in autumn 2027.

These taxes and contributions you need to plan for

Not every payment to the tax office or health insurance fund works the same way. For the reserve, what matters is what it is calculated on (turnover or profit) and when it is due:

VAT: always set it aside in full

VAT is not income. You only collect it for the tax office and pay it with the advance VAT return (Umsatzsteuer-Voranmeldung) after deducting the input VAT from your purchase invoices. If you invoice €5,000 net plus €950 VAT, €950 belongs in the tax account immediately. For a gross amount you calculate: gross amount × 19 / 119 = 15.97% (at 7%: 6.54%).

VAT is the item that falls due fastest – depending on the previous year’s turnover, monthly or quarterly on the 10th of the following month. As a small business under § 19 UStG (Kleinunternehmer) you don’t charge VAT and so don’t need to set anything aside for it. More in the guides VAT (Umsatzsteuer) for the self-employed and small business scheme (Kleinunternehmerregelung).

How much income tax should you set aside?

Income tax depends not on turnover but on taxable income – and it is progressive. That’s why a fixed percentage for everyone is wrong: with €20,000 profit hardly any income tax is due, with €100,000 a quarter. The table shows the 2026 burden for a single self-employed person without church tax who has voluntary statutory health insurance (approx. 21.1% contribution incl. long-term care insurance with a child, up to the contribution ceiling) and deducts these contributions as special expenses.

Reading example: with €50,000 profit you pay around €10,550 for health and long-term care insurance and around €7,024 income tax – together 35% of profit. That leaves a good €32,400 to live on and for pension provision. How the tax amounts are derived is explained in the guide income tax for the self-employed.

Trade tax: when you need to set aside extra

Freelancers pay no trade tax. Traders pay it on profit above the €24,500 allowance, but under § 35 EStG it is credited against income tax at 4.0 times the tax base amount (Messbetrag). If your municipality’s Hebesatz is 400% or below, this almost balances out: what you pay to the municipality you save on income tax.

If the Hebesatz is higher, a remainder is left. The rule-of-thumb formula: (profit − €24,500) × 3.5% × (Hebesatz − 400%) is your extra burden. In Munich (Hebesatz 490%) with €70,000 profit that is €45,500 × 3.5% × 0.9 = around €1,433 a year. Important for liquidity: trade tax and income tax are due on different dates, so the reserve must cover both. The full calculation is shown in the guide calculating trade tax.

The 30–40% rule of thumb – and when it doesn’t fit

For most self-employed people with €30,000 to €100,000 profit, the rule “VAT in full plus 30 to 40% of profit” is a solid benchmark if it also includes health and long-term care insurance. If you already pay your health insurance in full every month, the percentage from the column “Tax in % of profit” plus a buffer of about 5 percentage points is enough for income and trade tax.

Because the reserve depends on profit but you see turnover, a simple conversion helps: if your business expenses are about 30% of net turnover, 30% of profit corresponds to around 21% of net turnover. Check the rate every quarter with your current EÜR – see preparing your EÜR.

• Less is enough with a small profit (below €20,000), when self-employed on the side with a low salary, or if a partner has hardly any income (income splitting).
• You need more with profits over €100,000, with church tax, with a Hebesatz above 400% and when self-employed on the side with a good salary, because then every euro of profit is taxed at 30–42%.
• You also need more in the first year, because back payment and prepayments coincide.
• You need less if the tax office has already set suitable prepayments – then you pay as you go and only set aside the difference.

Worked example: web developer in Munich with €70,000 profit

A single web developer (trade, no church tax) has net turnover of €100,000 in 2026 and €30,000 net business expenses, on which he paid €3,000 input VAT. His profit: €70,000. He has voluntary statutory insurance and pays the maximum contribution of around €14,717 a year. This is what his reserve looks like:

Result: in addition to the VAT, which is paid out monthly, he needs around €13,871 for taxes (19.8% of profit) – about €1,156 per month. Including health insurance he is at 40.8% of profit, at the upper end of the rule of thumb. Without prepayments he sets this amount aside himself; as soon as the tax office and the municipality set prepayments, the money flows out quarterly.

• VAT: €19,000 received − €3,000 input VAT = €16,000 payable, spread over the advance returns.
• Taxable income: €70,000 − €14,717 health insurance − €36 lump sum ≈ €55,247; income tax according to the scale €12,438.
• Trade tax: (€70,000 − €24,500) × 3.5% = €1,592.50 tax base amount × 490% = €7,803.
• Credit under § 35 EStG: 4.0 × €1,592.50 = €6,370 → income tax only €6,068, solidarity surcharge €0.
• Total taxes: €6,068 + €7,803 = €13,871.

How to organise your reserves

The most reliable system is a separate account just for taxes. A separate business account already separates private and business; an additional sub-account or savings account just for taxes makes the reserve untouchable. Many banks offer free sub-accounts.

• Transfer immediately with every incoming payment: the VAT included plus your percentage of the net amount (e.g. around 25% of the net with a 30% cost ratio and a 35% reserve rate on profit).
• Not by gut feeling but by numbers: check the rate quarterly against your current profit and adjust it.
• From the tax account you pay the UStVA, prepayments and back payments – nothing else.
• Surplus after the assessment: if money is left over, it is your buffer for next year or a profit withdrawal with a clear conscience.
• Too tight? Better to apply early for a deferral (Stundung) or instalments than to risk late payment surcharges of 1% per month.

Planning tax reserves with Kontelio

Kontelio shows you at any time how much VAT you have collected and what the next advance VAT return is likely to amount to. Your booked invoices, expenses and bank transactions continuously produce the EÜR with your provisional profit – so during the year you can see whether your reserve rate is enough. Under Deadlines and obligations you see the upcoming returns with due date and estimated amount. More on the page accounting software for the self-employed.

Frequently asked questions