If you’re a contractor, plumber, electrician, HVAC company, or trade business owner in Carlsbad, Vista, Oceanside, or anywhere in San Diego County, one of the most common questions is:
“How much should I be setting aside for taxes?”
If you don’t plan ahead, tax season can wipe out your cash flow — especially in construction where income is inconsistent and large project payments hit all at once.
Let’s break this down simply and practically.
1️⃣ The Short Answer: Start With 25%–35%
For most small businesses in the trades structured as:
- Sole Proprietor
- LLC
- S-Corporation
You should generally set aside:
✅
25%–35% of your net profit
Not revenue.
Not total deposits.
Net profit (after expenses).
Why such a big range? Because it depends on:
- Your total income (business + personal)
- Whether you’re an S-Corp
- California state taxes
- Self-employment taxes
- Whether you have payroll
- Other deductions and credits
If you’re in California, your tax burden is higher than many other states — which is why planning matters even more here in San Diego.
2️⃣ What Taxes Are You Actually Paying?
If you’re in construction or the trades, you’re typically paying:
Federal Taxes
- Income tax
- Self-employment tax (15.3%) if not on payroll
California Taxes
- State income tax
- $800 minimum franchise tax (LLCs & Corps)
Payroll Taxes (if you have employees)
- Employer portion of Social Security & Medicare
- California EDD taxes
For many trade business owners in San Diego County earning between $150K–$400K in profit, the effective combined tax rate often lands in that 28%–35% range.
3️⃣ Real Example: San Diego Contractor
Let’s say you run a remodeling company in Carlsbad:
- Revenue: $1,200,000
- Expenses: $850,000
- Net Profit: $350,000
If you’re an S-Corp paying yourself:
- $120,000 W-2 salary
- $230,000 distributions
You could easily owe:
- $60,000–$100,000+ in total federal + CA taxes
That’s why tax planning is critical in the trades — especially when jobs close at different times of the year.
4️⃣ The Smart Way to Set Money Aside
Here’s what we recommend for construction and trade businesses in San Diego:
Step 1: Open a Separate “Tax Savings” Account
Every time money hits your operating account:
- Transfer 25–35% of net profit to taxes
- Do it automatically if possible
Step 2: Pay Quarterly Estimated Taxes
Due:
- April 15
- June 15
- September 15
- January 15
Quarterly payments prevent penalties and avoid a massive April surprise.
Step 3: Don’t Wait Until Year-End
In construction, income is uneven. A big December project completion can spike taxable income dramatically.
We recommend reviewing:
- Profit & Loss monthly
- Cash flow monthly
- Tax projections quarterly
5️⃣ Why Trades & Construction Businesses Get in Trouble
In San Diego construction, we see the same patterns:
- Owners spend based on bank balance
- Large material deposits distort profit
- Payroll fronting eats cash
- No separation between operating cash and tax money
- No mid-year tax projection
Profit ≠ Cash
And Cash ≠ What You Can Spend
If you’re not job-costing properly in QuickBooks, your tax planning will always be reactive.
6️⃣ Should You Be an S-Corp?
Many contractors and trade business owners in North County San Diego benefit from an S-Corp election once profit exceeds ~$80K–$100K.
Why?
- It can reduce self-employment tax
- Creates cleaner payroll structure
- Improves tax efficiency
But it must be structured properly — including reasonable compensation and clean books.
7️⃣ Local Tax Planning Matters in San Diego
California is not Texas or Nevada.
Between:
- High state income tax
- Franchise tax
- Payroll compliance
- Sales tax considerations (for certain materials)
Local expertise matters — especially for construction and service-based businesses operating in Carlsbad, Vista, Oceanside, Encinitas, and surrounding areas.
8️⃣ A Simple Rule of Thumb for 2026
If you’re a trade business in San Diego County:
| Situation | Recommended Set-Aside |
|---|---|
| New business under $100K profit | 25% |
| $100K–$300K profit | 28–32% |
| $300K+ profit | 32–35% |
If unsure — start high.
It’s better to have extra in your tax account than not enough.
Final Thoughts
If you’re a plumber, electrician, GC, HVAC company, or remodeling contractor in San Diego and you’re asking:
“Why do I make good money but feel broke at tax time?”
It’s usually one of three things:
- No tax reserve system
- No job costing
- No quarterly planning
Setting aside the right percentage is step one.
Having clean, accurate bookkeeping is step two.
Strategic tax planning is step three.
If you’re a construction or trade business in Carlsbad or North County San Diego and want help building a predictable tax plan, that’s exactly what we do at Accounting Fresh.
Reliable. Responsive. Local.